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UK retail sales rocket but where are all the stores?

Retail sales growth in the U.K. accelerated at its fastest pace in almost 26 years – just as the industry is preparing itself for major downsizing and store closures, new studies reveal.

Food retailers recorded the fastest growth in more than two years, reporting the strongest year-on-year sales growth of any part of retailing according to the Confederation of British Industry's (CBI) latest monthly Distributive Trades Survey.

A Tesco supermarket in Glasgow, Scotland.
Jeff J Mitchell I Getty Images

Sales are expected to rise more slowly in the year to January, but robust growth is still expected, which has resulted in the strongest growth in orders placed with suppliers for a year.

The survey, published Friday, of 122 firms in the crucial run-up to Christmas covers the two weeks ending 11 December and includes the sales-boosting effects of Black Friday.

But the CBI's data comes as ratings agency Fitch issued a damning report on the state of the European high street, with the group anticipating a loss of 15-20 percent loss in total retail space from next year.

Fitch said the growing trend of smaller stores, fierce online competition and changing consumer spending patterns will lead to major closures in the next four to five years from 2015 in Europe.

"Non-food retailers will probably see physical space fall faster than food retailers because of greater online competition. Do-it-Yourself and big-ticket retailers such as Homebase, METRO and Kingfisher will be among the most exposed to this trend," said director at Fitch Ratings, Jean-Pierre Husband.

"In food retail, Tesco is among the most exposed to margin erosion from falling revenues, due to its significant operating leverage linked to its large-store formats," Husband said.

The ratings agency also said the impact of closures will mean retailers will need to "migrate customers" to their websites, and be more strategic with smaller-store formats.

After surging in November, U.K. online sales were up on a year ago again in December, but at a somewhat slower rate, according to the CBI survey. Some 74 percent said internet sales were up, 14 percent said they were down, giving a rounded balance of 59 percent, down on the 72 percent seen last month.

The CBI's distributive trades survey chairman, Barry Williams, said the strongest U.K. sales growth for a quarter of a century is a big boost for retailers, but warned shoppers "may have caught the Christmas bug early" and brought some of their spending forward.

"This has been a tough year for many retailers and parts of the sector are still struggling. Increasing disposable income from real wages growth, and falling fuel prices are giving retailers reasons for optimism but we'll need to see in the New Year whether the upbeat mood takes hold," he said.