High street sales suffer slump in January

Fears that shoppers resumed their strike in January were borne out yesterday by figures showing the sharpest monthly fall in retail sales in more than a year.

After an unexpectedly strong December, sales in January slumped 1.3 per cent, falling for the first time since last July. The biggest monthly decline in 13 months stoked worries that Britons had reined in their spending after splashing out for Christmas.

Although the annual volume of sales rose 1.3 per cent, this was much weaker than predicted and followed growth of 4.3 per cent in December, the Office for National Statistics said.

January is traditionally a volatile month for retail sales but the pace of the deterioration shocked many economists. Howard Archer, at Global Insight, said: "This is a really stunning retreat that reinforces our belief that the Bank of England is too optimistic about consumer spending."

On Wednesday Mervyn King, the Bank's Governor, said he saw steady consumer spending growth over the next three years as he painted a benign picture of the economy. Indeed, the Bank raised its forecast for growth and predicted inflation would remain in line with its 2 per cent target.

The ONS said month-on-month sales volume in January fell across all sectors apart from non-food retailing, which was kept aloft by strong growth by specialist internet retailers. Household goods stores fared the worst, down 3 per cent despite the fact that January tends to tempt people into spending money on their homes.

Other surveys, including one from the British Retail Consortium last week, have suggested the pick-up in spending over Christmas was short lived. Alan Clarke, at BNP Paribas, said: "It is possible that there has been an impact from the shift in the timing of sales, with more emphasis on sales in December instead of January. The February data will be the acid test of whether consumer spending has stagnated."

The figures showed that any sales had been at the expense of retailers' profits margins since the retail sales deflator showed a fall of 1.2 per cent in January.