British retail sales unexpectedly fell in December and at their fastest rate in a year, official data showed on Friday, in a sign that consumers reined in spending over the Christmas period.

The Office for National Statistics said sales fell 0.4 percent last month, confounding forecasts for a 0.2 percent rise and the weakest rate since January 2007.

That took the annual rate down to 2.7 percent from a downwardly revised 4.2 percent in November, its lowest since September 2006.

The ONS said the data was now showing a slowdown in retail sales growth with December's decline driven by the worst performance by general mixed retailers, which include department stores, for more than 13 years. The weaker than expected readings came despite increased discounting by retailers, with the implied deflator measure of prices down 1.2 percent on the year, the weakest since September.

The figures are likely to boost expectations that interest rates will have to fall next month to shore up the economy as fears grow over the impact of the global credit crunch and households feel the pinch from past interest rate rises.

The Bank of England cut borrowing costs in December by 25 basis points to 5.5 per cent and markets anticipate a further two to three cuts this year. Retailers have reported mixed fortunes over the crucial Christmas period with high street bellwether Marks and Spencers suffering its worst festive season in more than two years, but department store John Lewis fared better.