Jobs in retail are falling at a record pace because of government policy and a technological revolution, the British Retail Consortium (BRC) has warned.

The BRC’s Retail Employment Monitor for the third quarter of 2017 shows hours worked in retail fell 4.2% year on year. This is despite a 2.4% increase in retail store numbers, driven in part by increased demand for convenience shopping.

The fallout is more severe than the second quarter, when full-time and part-time hours fell 3.3%. Overall, the total number of employees fell 3% year on year, with full-time labour falling at a faster rate than part-time.

Helen Dickinson, the BRC’s chief executive, said the three months to September saw the sharpest year-on-year drop in hours and employment since the monitor started nine years ago.

“Behind this shrinking of the workforce is both a technological revolution in retail – which is reducing demand for labour – and government policy, which is driving up the cost of employment. With both supply and demand pushing in the same direction, it’s little surprise that we’re seeing fewer people working in the industry.”

Dickinson said pay growth well in excess of the UK average had come along with falling employment – made possible by productivity gains that had outstripped those of other industries.

“The challenge for retailers will be in maintaining the pace of productivity improvement as they come up against shortages of the skills needed for a new, digital-dependent industry.”

She urged chancellor Philip Hammond to take the opportunity in his Budget next month to provide extra flexibility in the use of Apprenticeship Levy funds.

This would enable retailers to rollout digital skills training to a workforce that covered nearly 10% of all UK employment, she said.

Half of the BRC survey’s respondents said they intend to increase employment next quarter to cover the busiest period of the year. The remainder intend to keep staffing the same – intentions that were the same as those reported during the same period in 2016.