Hopes of another rate cut by the Bank of England next month were dented today as retail sales figures showed that the high street was bearing up under the pressure of challenging economic conditions.

Although retail sales fell by 0.4 per cent in March - the sharpest decline since January last year - total sales for the first three months of the year were up 2 per cent compared to the final quarter of 2007.

The Office for National Statistics said that sentiment on the high street was better than expected, with sales growth for January and February revised upwards after receiving updated information from businesses.

January's growth was increased from 1.1 per cent to 1.5 per cent and February's from 1 per cent to 1.1 per cent.

Vicky Redwood of Capital Economics, said: “The Monetary Policy Committee aren’t going to ignore this number. It certainly reduces the chances of any cut again in May."

Howard Archer, chief UK and European economist for Global Insight, the economics consultancy, said: "...there are signs are that the consumer's health is deteriorating in the face of mounting pressures, and we expect spending to be markedly weaker over the coming months.

"Going forward, we expect consumer spending will increasingly falter in the face of mounting headwinds which has seen confidence fall to a 15-year low."

Food sales in March were down 0.1 per cent and non-food stores reported a 0.7 per cent fall.

Sales of textiles, clothing and footwear fell 0.1 per cent in March, the first negative month of trading since December 1998.

Prices continued to fall on the high street, with price deflation running at -1.2 per cent last month, compared with -0.6 per cent in February.

Mr Archer said: "This indicates that retailers believe there is a growing need to offer incentives to get increasingly pressurised consumers to shop ... While this is good news for the Bank of England on the inflation front, it is bad news for retailers' margins and profits."

Sterling rose on the strong quarterly picture as dealers bet the Bank of England would be reluctant to cut interest rates aggressively, especially after meeting minutes showed on Wednesday that two policymakers opposed this month’s decision to cut borrowing costs.

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