The survey of 132 firms, of which 66 were retailers, showed that sales volumes declined more rapidly than at any time since January 2012, with weaker consumer confidence a likely factor in the immediate period following the EU referendum. Companies expect sales volumes to decline at a broadly similar pace as this month in the year to August.
Within retail, sales by grocers, and furniture and carpets stores were the main drivers of the drop in overall volumes. But some sectors bucked the trend, with non-specialised department stores and retailers of footwear and leather goods reporting higher volumes.
Orders placed on suppliers dropped at the quickest pace since March 2009 and are expected to fall further in August.
CBI chief economist Rain Newton-Smith said: "While conditions in the retail sector have weakened, we should be careful about reading too much too soon, as consumers were likely to err on the side of caution in the immediate period following a vote to leave the EU.
"Current low levels of inflation and high overall employment should support consumer spending in the near term, although the impact of lower sterling is likely to feed through to higher inflation over time.
"What businesses and consumers need now is calm and decisive leadership, a clear timetable and a plan for negotiating the UK’s future outside the EU to restore confidence."
Some 24 per cent of retailers said that sales volumes were up in July compared with a year earlier, while 38 per cent said they were down, giving a rounded balance of -14 per cent.
Nine per cent of of retailers placed more orders with suppliers than they did a year ago, and 42 per cent placed fewer. But sales increased for non-specialised goods (+52 per cent).