Europe Economy

UK consumers rein in spending after Christmas splurge

U.K. retail sales slid more than expected in the month of January from December, their biggest drop since April 2012, but the year-on-year figure showed a steady rise for the second consecutive month.

Monthly figures showed sales slipped 1.5 percent below forecasts for a drop of 1.0 percent in a Reuters poll. For the three months to January retail sales saw their strongest yearly rise since December 2004 however, and compared with the same period last year, the figure was up 4.3 percent.

Sterling rebounded sharply after the news, climbing to session highs of $1.6681 after trading near $1.663.

(Read More: UK unemployment rose at end of 2013)

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Rahul Sharma, founder and managing director of Neev Capital, said that the yearly reading was strong and expected that discretionary retail items had led the buying.

"It shows quite a lot of confidence in the U.K consumer," he told CNBC Friday.

The Office for National Statistics, which published the data, confirmed there was notable growth in non-food stores with regards to the year-on-year figure. It also noted that month-on-month growth in December 2013 was particularly strong.

"Stores selling household goods increased by 9.8 percent, the largest year-on-year increase in these stores since July 2007," it said in the press release on Friday.

UK retail sales in January fall 1.5% on month

Retail sales came in way above expectations in December with strong growth at smaller stores resulting in the largest annual rise since 2004. The Office for National Statistics (ONS) reported a rise of 2.6 percent on the month, the largest monthly increase since February 2010. Economists had expected a 0.4 percent monthly rise, following an increase of 0.3 percent in November.

Economists agree that the U.K. is emerging from recession, with upbeat data last year beginning to lighten the mood. However, concerns remain that the return to growth has been fueled by unsustainable household debt, with U.K. citizens showing little appetite to save.

(Read more: UK economy records fastest growth in 6 years)

Inflation fell below the Bank of England's (BoE) target in January to its lowest annual level since November 2009, according to figures released Tuesday.

Consumer prices rose 1.9 percent year-on-year last month, below the 2 percent target set by the central bank. Month-on-month prices declined 0.6 percent.

The fall in the rate resulted from price movements for recreational goods and services, furniture, household goods, tobacco and alcoholic beverages, said the Office for National Statistics which published the data.

By's Matt Clinch; Follow him on Twitter @mattclinch81