Retail sales fell unexpectedly in January in a sign the consumer strength that has powered the economy in the wake of last June's Brexit vote might be waning in the face of higher inflation.

According to the Office for National Statistics, sales volumes fell 0.3 per cent in the month, against City analysts' expectation of a 0.9 per cent bounce back following December's near 2 per cent decline.

The annual rate of retail sales growth slipped to 1.5 per cent, down sharply from the 4.3 per cent rate recorded in December.

The three-month-on-three-month movement in the index fell by 0.4 per cent, the first decline seen since December 2013.

The ONS said that higher food and fuel prices for shoppers were “significant factors in this slowdown”.

The weak reading sent the pound down more than half a cent to $1.2421 as traders reduced bets on an early interest rate rise from the Bank of England.

Average store prices including fuel rose by 1.9 per cent, the fastest rate since July 2013.

Shoppers flagging

Earlier this week the ONS reported that overall consumer prices rose by 1.8 per cent in the month, the highest rate since mid-2015.

That largely reflects the 12 per cent plunge in the trade-weighted value of the pound since last summer's Brexit vote, which has sent import costs rocketing.

Most forecasters expect rising prices to curtail consumer spending this year, slowing the growth rate of the economy.

Household consumption has been the main driver of 0.6 per cent GDP growth in both the second and third quarters of 2016, which defied widespread expectations among economists that there would be an immediate slowdown, or even recession, in the wake of the Brexit vote.

How the FTSE and Pound have changed since Brexit

Retail sales accounts for around 30 per cent of overall household consumption, which in turn accounts for around 60 per cent of the UK's GDP.

“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,” said Samuel Tombs, economist at Pantheon.

“The acid test is whether consumers [now] try to smooth their consumption by borrowing more,” said Alan Clarke, economist at Scotiabank.

“The Bank of England and ourselves assume that they will and the savings ratio will fall. On the basis of one or two potentially erratic months for retail sales, that assumption looks a little challenged at this very early stage.”

The ONS reported that food store sales volumes fell 0.5 per cent in January, household goods were down 0.6 per cent and non-store sales slipped 4.1 per cent.