UK retail sales fell 0.4% in December from November's figure, despite the run-up to Christmas being the time of year that is traditionally busiest for retailers.

The figures from the Office of National Statistics showed that overall spending rose by just 0.4% in the last three months of 2007, down from 1% in November.

These correspond with earlier figures from the British Retail Consortium, which said like-for-like figures had increased by only 0.3% in the worst Christmas for three years.

The two surveys are clear evidence that consumers have been hit by the global credit crunch and are being far more cautious with their money.

The shock results will add to the pressure already on the Bank of England to cut interest rates again next month, although with inflation over the government's 2.0% target such a move is by no means a formality.

The Bank's monetary policy committee cut interest rates from 5.75% in December to 5.5% but chose to keep them on hold in January.