Sterling edged lower against the dollar and the euro today as data showed retail sales bounced back weakly in December after shops in England emerged from a four-week November lockdown.
UK retail sales volumes rose 0.3% in December, much less than economist expectations in a Reuters poll for a 1.2% increase.
England is now in its third national lockdown and officials have not confirmed when it will end.
In early trade, sterling dipped 0.3% against the dollar at $1.3696, but it was still on track for a second week of gains versus the greenback.
"The weaker than expected UK retail sales released this morning combined with the suggestion that schools may not open until April, with non-essential shops opening even later in England bodes poorly for the recovery story," said Jane Foley, head of FX Strategy at Rabobank.
Against the euro, sterling was down 0.4% at 88.96 pence, after hitting an eight-month high of 88.30 pence in the previous session.
As Britain recorded another 1,290 deaths yesterday from Covid-19, down from a record 1,820 the day before, the narrative for a quicker economic recovery thanks to the vaccine rollout is weakening.
"The weakness in consumption is likely to be extended into much of Q1," said Simon Harvey, senior FX market analyst at Monex Europe.
Public borrowing in Britain for December came in at £34.1 billion, slightly above economists' forecasts, taking borrowing since the start of the financial year in April to a fresh record high of £270.8 billion.