The UK consumer finally appears to be cracking - potentially taking Britain's economic strength with it.

Retail sales unexpectedly fell for a third month in January, calling into question the key component of the economy's recent momentum. The decline left both the three-month and annual rates of growth at the slowest in more than three years.

The figures may be the beginning of a predicted cooling in household spending as Britons find their purchasing power eroded by faster inflation. Its materialisation confirms the warnings from Bank of England governor Mark Carney that consumers will falter this year, one of the "crucial" judgments he's cited for keeping interest rates at a record low even as the economy expands and price growth accelerates.

Carney came under fire last year for predicting a sharp slowdown if Britons voted to leave the European Union. While that hasn't materialised, the BOE predicts that Brexit will lead to weaker growth this year. Traders have cut bets that the central bank will raise its benchmark rate from a record-low 0.25 per cent by the end of this year.

"I don't think anyone would have expected the pace of spending to have suffered so much so soon," said Alan Clarke, an economist at Scotiabank in London. "This is a micro demonstration of what is likely to be happening to the consumer over the whole of 2017."

The latest data from the Office for National Statistics showed that the volume of goods sold in stores and online declined 0.3 per cent following a 2.1 per cent plunge in December. The drop confounded market expectations for a 1 per cent increase. In the three months through January, sales dropped 0.4 per cent, the worst quarterly performance since 2013.

The numbers cap a week that saw further evidence of a pickup in inflation - to a 2 1/2-year high - and an unexpected slowdown in wage growth. Another of Carney's key judgments is that increases in basic pay will remain modest this year.

Furniture and clothing chain Laura Ashley Holdings this week warned of a tough year ahead as its chief financial officer Sean Anglim said the company had seen a drop in consumer confidence. Another home-furnishings retailer, Dunelm Group, has also warned of challenges this month, while on Thursday Microsoft hiked the price of some of its products.

Inflation is forecast to keep climbing through 2017 as the 16 per cent drop in the pound since the Brexit vote boosts import costs. Some economists see it exceeding 3 per cent later this year, which would mean falling real pay for workers unless there's a corresponding pickup in their wages. The price of retail goods sold in January, as measured by the deflator, increased on an annual basis by 1.9 per cent, the biggest rise since mid-2013.

"The consumer tends to react pretty quickly - within a quarter or two - when they start to notice the difference in their weekly budget," Justin King, former chief executive officer of J Sainsbury, said in an interview on Bloomberg Television. "Given that about half the food and groceries that are sold in the UK are purchased in either euros or dollars," sterling's slump will likely drive inflation of 3-5 per cent before year end, he said.