British retail sales unexpectedly fell in September at their sharpest rate since the start of the year.
The Office for National Statistics said sales fell 0.4 per cent on the month, leaving them only 3.2 per cent higher than a year earlier. Analysts had predicted a 0.3 per cent rise.
The pound fell a third of a cent, and interest rate futures rallied as investors questioned whether next month's interest rate rise was still a done deal.
Economists said higher borrowing costs next month are still on the cards given price pressures are building.
"There's a question mark over the strength of consumer demand but we don't think this will derail prospects for a rate increase next month," said Philip Shaw, chief economist at Investec.
Philip Shaw, chief economist at Investec
Policymakers may be alarmed that price pressures are picking up sharply on the high street.
Prices on average were 0.6 per cent higher than a year ago, the first gain since January 2002 and the sharpest rate since June 2001.
Inflation slipped in September but still remains above the Bank of England's target, and Governor Mervyn King has said the Monetary Policy Committee has to consider factors playing into the longer-term outlook for prices such as money supply.
That rose by 1.8 per cent on the month in September and by 14.5 per cent on the year - a 16-year high.
Besides high prices, the weather may have also played its part in keeping Britons away from the shops. Some clothing retailers, in particular, had complained warm temperatures had depressed sales of the new autumn lines.