Retail sales tumble amid spending squeeze

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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.

January registered a -0.2% contraction according to the Office for National Statistics (ONS) in opposition to the 0.7% growth it was expected to show.

The pound deepened its losses against the greenback after retail sales missed expectations, dropping 0.5% to 1.241 United States dollars. Nonetheless, the pace of decline was slower than December's 2.2 percent decrease.

Online sales did see a 10% increase year-on-year, but dropped by more than 7% compared to December.

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Inflation hit a 31-month high of 1.8 percent in January and is expected to rise further on higher import prices.

At food stores, prices increased by 0.5% in January compared with the month before, marking the biggest month-on-month rise since April 2013.

Economists had been pencilling in a figure of 1% growth.

The surprise fall in the official measure of retail sales volumes has brought the recent run of resilient economic news to an abrupt end and suggests that the hit to consumer spending growth from higher inflation is starting to materialize, Ruth Gregory, a United Kingdom economist at Capital Economics, said.

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Howard Archer, chief United Kingdom and European economist at IHS Global Insight, said: "January's further drop in retails sales after a marked dip in December suggest that consumers could now be starting to seriously rein in their spending as their spending power is increasingly squeezed".

Food store sales slid 0.5 percent from December, while non-food sales climbed 1 percent in January. This was the weakest expansion since November 2013.

Analysts said consumers were becoming wary of spending at a time when employment and earnings growth was slowing and inflation rising.

On an annual basis, retail sales grew just 2.6%, down from expectations of a 3.9% jump, the worst figure in more than a year.

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