Sterling has gained strongly as retail sales beat expectations to grow in February for the first time in four months, despite rising shop prices.
Sales rose by 3.7 per cent compared with last year after a 1.4 per cent increase from sales in January, according to the Office for National Statistics (ONS).
The headline figure beat economists' consensus expectations of a 2.6 per cent year-on-year increase.
A separate survey by the Confederation of British Industry (CBI) also found volumes increased above expectations in the year to March, with 44 per cent of retailers reporting a rise in sales.
The pound appreciated from lows against the US dollar of $1.2463 to reach highs of $1.2527 in a matter of minutes in response, before paring some of its gains.
The volatile reaction from currency markets reflected the declining underlying trend in sales. Longer-term retail sales continued to show weakness, with quarter-on-quarter sales falling by 1.4 per cent, with some indications rising prices may be weighing on demand.
Shop prices including fuel rose by 2.8 per cent in the last year, the largest increase since March 2012, driving up the total value of sales at a faster rate than volumes.
This mirrors the rise of inflation, which rose above the Bank of England’s two per cent target to hit 2.3 per cent in February.
Richard Lim, chief executive at Retail Economics, said: "The underlying conditions still look pretty weak."
He added: "We expect real earnings to be shrinking by the summer," which will "bear down on discretionary spending."
Stronger performances from small retailers were a strong contributor to the February bounceback. This may be down to a boost to tourism as sterling makes prices cheaper. The same devaluation may have also boosted smaller online retailers exposed to global markets, with platforms such as eBay and Amazon in particular offering easy access for foreign buyers, Lim said.
The weak underlying trend suggests last year's bumper retail sales growth of almost five per cent may not be within reach, according to Philip Shaw, an economist at Investec.
He said: "Our view has been that the rise in prices on the back of the weakness of sterling has begun to impact on the volume of sales and will act as a brake the economy over the next few months. Despite today’s relatively firm data, this judgement remains intact."
Kate Davies, ONS senior statistician, said: "February’s retail sales figures show fairly strong growth, though the underlying three-month picture shows falling sales as February's figures follow two consecutive months of decline in December and January."