According to director general David Hawtin, nervousness about the global credit crunch and the much-publicised crisis at Northern Rock made many parents think twice about how much they spent last Christmas.
Quoted in the Guardian he said: "It has been very disappointing for the industry. People are very nervous.
"The toy market did not do any worse than other markets, but it certainly was not the shining star of previous years. Sales are expected to be significantly down on 2006."
Full figures have not yet emerged for the entire Christmas period, but the BTHA said sales were down by six per cent at the start of December.
TRA president Val Stedham added: "The golden rule has always been that if you are going to look after anybody at Christmas, you are going to look after the kids. That wasn't the case this time."