UK retail sales volume fell 0.3% in January and the data for the second month running was much weaker than consensus forecasts which had called for a 0.9% increase on the month. The December data was revised to show a 2.1% decline compared with a 1.9% drop reported previously.
There was a decline of 0.4% in the latest three-month period compared with the previous three months and annual growth slowed to 1.5% from 4.3% previously and this was the slowest rate of increase since November 2013.
Excluding fuel sales, there was a 0.2% decline on the month with a 2.6% annual increase.
Sales volumes for predominantly food stores declined 0.5% for January with a 0.2% annual decline. Sales in non-food stores rose 0.3% for the month and 2.8% over the year while the volume of sales in fuel stores declined 6.6% over the year.
Average prices rose 1.9% in the year to January which was the largest annual increase since July 2013 while the annual price increases in fuel stores was the strongest since September 2011 at 16.1% following a 3.3% monthly increase.
The overall trend in prices outside fuel was still relatively weak with annual gain of 0.5% or less across all other categories.
The data will maintain expectations that upward pressure on prices will have a significant impact in undermining sales growth during 2017 which will also dampen GDP growth. This has been expected by the Bank of England and the latest data will vindicate the Monetary Policy Committee (MPC) majority which wants to maintain a very loose policy to cushion the real economy.
The January data was influenced primarily by the fuel sector and other sectors will be watched closely over the next few months.
Sterling had weakened into the data and was subjected to further selling pressure after the release with EUR/GBP strengthening to the 0.8575 area while GBP/USD dipped to lows near 1.2400. Gilts continued to gain support with a gain of around 40 ticks on the day as 10-year futures traded above 126.00 while equity markets were slightly weaker.