LONDON (Bloomberg) -- UK retail sales unexpectedly fell for the first time in three months in April, a sign that record indebtedness, rising interest rates and spiraling prices may be starting to hurt consumer spending.

Sales fell 0.1 percent after a 0.5 percent gain in March, the Office for National Statistics said in London. Economists forecast an increase of 0.6 percent, according to the median of 35 estimates in a Bloomberg News survey. The implied deflator, a measure of shop prices, jumped 1 percent from a year earlier, the biggest increase since 1999.

Consumer spending, which accounts for two thirds of the economy, is succumbing to four interest-rate increases since August as Britons struggle with a debt burden of 1.3 trillion pounds ($2.6 trillion.) The Bank of England is trying to rein in inflation, which has exceeded the 2 percent target for 12 months after reaching a decade high in March. “Interest-rate increases will hit the consumer,” said Marchel Alexandrovich, an economist at Dresdner Kleinwort Group Ltd. in London who made the only forecast of a sales drop. “When prices go up, it's more difficult to shift volumes. We expect one more rate increase in August but that's probably it.” -------------Rate speculation

The implied rate on the September interest-rate futures contract fell 0.01 percentage point to 5.95 percent in London. The contract settles to the three-month London interbank offered rate for the pound, which has averaged 15 basis points more than the central bank benchmark for the past decade.

The bank's May 16 forecasts show that it may need to raise interest rates further to bring gains in consumer prices down to the 2 percent target. Inflation was 2.8 percent in April after reaching a decade-high of 3.1 percent in March.

Gains in the retail price deflator were led by food stores, textiles, clothing and footwear. Retailers account for a third of the consumer price index of inflation and the statistics office said that the deflator shouldn't be compared directly with the inflation data. ------------------Milk prices

Robert Wiseman Dairies Plc, Scotland's largest provider of fresh milk, said May 14 that annual profit rose 31 percent as the company raised prices and sold more milk to supermarket chains Tesco Plc and J. Sainsbury Plc. Skim-milk powder, the benchmark for world trade, reached a record $1.58 a pound May 4 on the Chicago Mercantile Exchange.

Spending more on food and clothes may have left Britons with less money for household goods, where a 3 percent drop led the decline in retail sales. Overall non-food store sales fell 0.5 percent, outweighing a 0.2 percent increase at food shops.

Consumer spending accounted for half of last year's 2.8 percent growth, which was the fastest in two years.

Higher borrowing costs may now damp spending faster than in the past because households owe 1.3 trillion pounds ($2.6 trillion) to creditors, the Bank of England said in its quarterly inflation report published May 16.

Next Plc, the UK's third-largest clothing retailer, said May 16 that a decline in sales worsened in the 15 weeks ending May 12. Chief Executive Officer Simon Wolfson said he was “cautious about the consumer environment” this year. -------------------House prices

The bank still said that consumer spending is “resilient” and may pose an “upside” risk to growth as Britons keep shopping, encouraged by higher house prices. Home values rose an annual 10.9 percent, the second-fastest pace in two years, HBOS Plc, the UK's biggest mortgage lender, said May 10.

“With falling unemployment and rising house prices, we're quite bullish on UK consumer spending,” said Jeavon Lolay, an economist at Lloyds TSB Group Plc in London, before the report.

The quickest economic growth in two years last year is creating jobs. UK unemployment fell to the lowest since October 2005 in April. Average earnings growth excluding bonuses accelerated to 3.7 percent in the first quarter, the statistics office said May 16.

Today's figures still showed an increase of 2.5 percent on the month in non-store retailing and repair, the group which includes Internet-only retailers. Sales in that category rose 17 percent in the quarter through April from a year earlier, the biggest gain since records began in 1986.

There are some signs that higher lending rates are starting to discourage Britons from borrowing. Personal insolvencies reached a record last quarter, and mortgage approvals fell to the lowest in 11 months in March. “The number of interest-rate increases we've had is clearly registering in peoples' minds, and it looks like sales growth will be reduced,” said Paul Clarke, UK head of business banking for retail and wholesale companies at Barclays Plc in London, before the report. “Every time people read about interest rates rising it makes them a bit warier.”