Retail sales in February fell sharply and are expected to continue to decline over the coming months in news which undermined sterling's strength today.

This afternoon the dollar stood at 1.7466 to the pound, while the euro was at 1.4704 against sterling.

The latest data from the Confederation of British Industry (CBI) shows that just 22 per cent of retailers experienced an increase in sales for the month, compared to 40 per cent who reported a decline - giving a total balance of minus 18 per cent, compared to the market predictions of plus one per cent.

The continued slowdown in sales following the traditional Christmas period is likely to continue in to next month, with retailers' expectations standing at minus five per cent, especially as shoppers continue to worry about other expenses.

"With rapidly rising household bills for energy, water and council tax, it's no wonder that consumers remain cautious about spending money expect on basics such as food," said John Longworth, chairman of the CBI's survey and a executive director of retailer Asda.

On a more positive note, the CBI stressed that the underlying sales trend based on a three-month average actually improved to minus ten per cent, compared to minus 15 per cent in January and considerably higher than the record low recorded in November of minus 35 per cent.