Retail sales grew at the slowest pace in more than three years, with economists pointing to inflationary pressure starting to weigh on consumer spending.
Sales fell by 0.3 per cent month-on-month during January, with 1.5 per cent annual growth the slowest since November 2013, according to the Office for National Statistics.
Sales also declined quarter-on-quarter, while store prices, including fuel, rose by 1.9 per cent.
The pound fell below $1.24 against the dollar in response before paring gains.
Increased fuel prices have been driven by cuts in production by the Organisation of the Petroleum Exporting Countries (Opec), while inflation has risen steadily since the devaluation of sterling following the EU referendum.
Many six-month currency hedges for retailers ran out around the end of the year, meaning the pass-through of the devaluation in sterling has started to push up prices in earnest as imports become more expensive.
Martin Beck, senior economic advisor to the EY Item Club, said: “With sterling’s drop in 2016 still feeding through to shop prices, pressure from inflation is set to intensify. Very low unemployment and cheap and plentiful credit offer some support, but retail weakness looks likely to define 2017.”
With inflation expectations rising, some consumers may have brought forward buying items in order to avoid anticipated price increases.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said: “The surge in spending in the autumn seems to have reflected consumers bringing forward big ticket purchases from 2017 due to expectations of sharp price rises.”
Resilient consumer spending has been the major support to the UK economy since the EU referendum, and any weakness in retail figures could cause growth to slow. However, with record employment levels the Bank of England expects consumer spending to continue, albeit with Britons dipping into their savings.
Jason Gordon, consumer business partner at Deloitte, said: “Record levels of employment and some growth in earnings in the last quarter of 2016 have boosted spending, but it is unclear how long this will last. In short, the outlook for the sector for the rest of 2017 is cloudy.”