The total gross revenue generated last year through the sale of all software, hardware and accessories was £2.520 billion, according to industry bode UKIE.
Software sales alone amounted to £1.42 billion, a decline of 7% compared to 2010.
It's noted that all numbers don't take into account digital revenues from online game sales, downloadable content and micro-transactions.
Despite the declining retail figures, they were described as better than anticipated by chairman Andy Payne.
"In a year when overall consumer spending was down, 2011 proved to be a better-than-expected year for the UK's boxed-product games market," he said.
"Helped by the launch of many top-quality titles, particularly in quarter four, total software sales of £1.42bn was better than many predicted."
Out of the ten best-selling releases of 2011, eight were released during the fourth quarter, meaning 51% of revenue was created during that period.
Modern Warfare 3 was named as the best-selling game of the year, which was crowned the fastest-selling entertainment launch.
Accessories for PC and consoles were down 17% in total value, with sales declining by 23%. Motion controller devices such as Kinect and PlayStation Move accounted for 11% of sales and 27% of revenue.
The best-selling motion-controlled games across all formats were Just Dance 3 on Wii, LittleBigPlanet 2 on PlayStation 3 and Forza Motorsport 4 on Xbox 360.
High street retailer GAME's shares plummeted by 90% in 2011 despite £1 billion in annual turnover.
Watch a trailer for Forza Motorsport 4 below: