Credit card news: Woolworths predicts difficult year

Australia's retail sector could be poised for a challenging 12 months, according to Woolworths.

Woolworths has warned the coming months may prove to be particularly challenging for the struggling retail industry, as consumers opt to keep their credit cards shut away amid economic concerns.

In its latest earnings report, the company announced a 4.7 per cent increase in sales over the last 12 months, but pointed to uncertainty surrounding new taxes and weak shopper sentiment as possible indicators of difficult trading conditions.

"This result has been achieved in a very challenging year for retail which saw continuing deflationary effects, the disruption caused by natural disasters, increased consumer caution and higher domestic savings rates," said chief executive Michael Luscombe.

While Mr Luscombe told markets that Woolworths had increased its customer numbers and sector share, higher interest rates and energy prices could persuade families to avoid credit card spending.

According to AAP, investment bank Merrill Lynch claimed in a study earlier this week that consumers in Melbourne and Sydney had become particularly cautious due to local difficulties.

By Joe Letts