Hopes that confidence was returning to the high street were dampened yesterday after official figures showed that retail sales fell more than expected in May.

Trade fell by 1.6 per cent last month against May last year, and trade was 0.6 per cent below April, according to the Office for National Statistics. Sales of non-food fell by 3 per cent against last year, the largest year-on-year decline since July 1992. The year-on-year quarterly sales growth of 0.6 per cent was the joint weakest since 1995.

Economists said the depressed retail sales suggested Britain was further from recovery than thought; the sector is usually one of the first to revive in a downturn. The figures sent sterling falling to a one-week low against the dollar and euro yesterday, losing some of its recent gains. Speculators got out of the pound, expecting that an interest rate rise and growing output were further off than the market thought.

Vicky Redwood, UK economist at Capital Economics, said: “May’s drop in the official measure of retail sales suggests that the positive momentum in high-street spending is starting to fade. We wouldn’t be surprised if this marked the start of a period of rather weaker sales growth than of late.

“The credit crunch-driven nature of the slowdown so far appears to have primarily hit spending off the high street. But as the deteriorating labour market and future tax rises hit household incomes more generally, we expect a prolonged period of weakness in both retail and non-retail spending.”

Tarlok Teji, head of retail at Deloitte, said the figures suggested that sales were “bouncing along the bottom”. He said: “The good weather enjoyed so far this year and a promising forecast for the summer may give DIY and gardening retailers some respite. However, the fall in the figures compared to last year’s numbers paints a bleaker picture.”

The weak figures echoed the index of the British Retail Consortium (BRC), which showed like-for-like sales of -0.8 per cent over the month. Stephen Robertson, director-general of the BRC, said: “These figures confirm our findings that May’s sales growth was well down on April’s Easter-driven surge. Until we see a turnaround in the sales of big-ticket items, it seems premature to talk of ‘green shoots’.”

The figures come in the same week as positive trading updates from Tesco and J Sainsbury.

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