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Britain’s shoppers turn cautious with inflation expected to squeeze household budgets

Britain's appetite for food and drink rose in January despite an overall dip in retail sales indicating a continued shift in the U.K.'s consumption patterns.

U.K. retail sales fell 0.6 percent in January compared to the same period last year, according to new data from the British Retail Consortium and audit firm KPMG on Tuesday. Over the three months to January 2017, food sales were up 0.6 percent, fuelled by increased demand over Christmas and subsequent New Year health resolutions.

However, the festive period was less kind to retailers in the non-food sector, which saw sales rise just 0.2 percent on a like-for-like basis and 0.3 percent on a total basis, well below the 12-month total average growth of 0.8 percent.

Shoppers buy groceries and goods
Christopher Furlong | Getty Images
Shoppers buy groceries and goods

Retailers were up against it this year, competing with a strong January 2016 in which sales were up 2.6 percent. Yet the figures released Tuesday point to the slowest growth during the festive period since 2009, predominately driven by "slowing sales in non-food sectors," noted Helen Dickinson, chief executive of the BRC, in a press release.

Paul Martin, U.K. head of retail at KPMG added: "With consumer price inflation beginning to kick-in alongside retailers' costs also rising, the sector will need to continue to examine its cost-base as this will be a vital element of success in 2017."

Speaking to CNBC Tuesday, Henry Dixon, fund manager at investment manager GLG Partners, suggested the scale of supermarkets will go some way in enabling them to continue to offset inflation and hold prices flat going forward.

Inflation is predicted by the Bank of England to rise this year after sterling's dramatic fall following the Brexit vote, and amid oil prices fluctuations. The BRC report states that almost two-thirds (65 percent) of consumers expect food prices will have the biggest impact on their personal finances in the year ahead, outdoing energy bills (58 percent) and petrol prices (53 percent), suggesting the U.K. retail sector could continue to be squeezed by tighter purse strings in the months ahead.