British consumers unexpectedly increased their shopping in January, but the big picture remains one of weak demand from inflation-hit households relying more on discounts at retailers to make ends meet.

Official data published on Friday showed sales volumes rose by 0.5 per cent from December for only the second month-on-month increase since August 2021. A Reuters poll of economists had pointed to a 0.3 per cent fall in sales last month.

Fuel sales rose in January, reflecting a fall in prices, and discounting helped online retailers as well as jewellers, cosmetic stores and carpet and furnishing shops, the Office for National Statistics said.

But clothing store sales fell back sharply after rising for four months, and food store sales dropped again as consumers hunted for cheaper products and bought fewer items.

Sales volumes in the key Christmas month of December fell more deeply than previously reported, dropping by 1.2 per cent from November, rather than the original estimate of a 1.0 per cent decline.

“After December’s steep fall, retail sales picked up slightly in January, although the general trend remains one of decline,” ONS Director of Economic Statistics Darren Morgan said in a statement. Sales fell by 5.1 per cent compared with January 2022 for their 10th consecutive year-on-year drop, the longest such run since the 2008-09 global financial crisis.

Volumes were 1.4 per cent below their levels immediately before the coronavirus pandemic struck.

Britain’s economy is widely expected to fall into a recession this year under the weight of the leap in inflation and polling firm GfK’s consumer confidence index last month showed households close to their gloomiest since at least 1974.

Sterling fell slightly against the dollar and the euro immediately after the data was published.

The Bank of England has said the surge in inflation seems to be turning a corner and data published on Wednesday showed the consumer prices index fell by more than expected, although at 10.1 per cent it is more than five times the BoE’s target.

It is also much higher than growth in wages, eating into the spending power of consumers.

Energy bills for households could fall by the summer which, while still sky-high compared with their levels before Russia’s invasion of Ukraine, could alleviate the drag on demand.

But James Smith, an economist with ING, said the prospect of house price falls and higher mortgage costs risked adding to the gloom among consumers.

“Overall, we’re expecting a very mild recession through the first half of this year,” he said.

Finance minister Jeremy Hunt has ruled out another major round of support for households when he delivers an annual budget statement on March 15, and there is also likely to be more pain for borrowers from the BoE soon.

The central bank is expected by most analysts and investors to raise interest rates again, this time by a quarter of a percentage point in March. It might do the same again in May, which would take Bank Rate to 4.5 per cent, the highest since 2008.

With consumers feeling the pinch, retailers are battling to win over price-conscious shoppers.

Recent industry data has shown particularly strong performances from German-owned discounters Aldi and Lidl as shoppers seek to offset grocery inflation, which hit a record 16.7 per cent in the four weeks to Jan.22.

The British arm of Aldi said this week it would hire more than 6,000 workers.

Meanwhile British consumer price inflation fell by more than expected to 10.1 per cent in January from December’s 10.5 per cent and there were also drops in underlying measures of price growth that are being closely watched by the Bank of England, official data showed.

Economists polled by Reuters had forecast that the annual CPI rate would drop to 10.3 per cent in January, moving further away from October’s 41-year high of 11.1 per cent but still eating into the living standards of households.

Earlier this month the Bank of England (BoE) said it saw signs that the surge in consumer prices had turned a corner and it suggested it was close to ending its run of interest rate hikes.

Investors expect another increase in borrowing costs next month by the BoE but Wednesday’s data may add to the sense that a peak in Bank Rate is not far off.

Prices of services, which are also in the BoE’s spotlight, slowed their rise in January, up by an annual 6.0 per cent compared with 6.8 per cent in December. “While any fall in inflation is welcome, the fight is far from over,” finance minister Jeremy Hunt said.