LONDON, Jan 19 Reuters The pound sagged and UK government bond prices rose on Friday, after a shock drop in British consumer spending in December raised the risk of recession, putting a stop to the currency39;s recent gains.

The Office for National Statistics said people doing their Christmas shopping earlier than usual especially for food contributed to retail sales volumes shrinking 3.2 between December and November.

Sterling eased, down 0.16 on the day against the dollar 1.2685 and fell 0.18 against the euro, to 85.76.

That was a reversal of recent moves. The pound on Thursday hit its strongest in a month on the euro, and while the dollar has strengthened across the board this year, sterling has fallen the least among G10 currencies.

Part of the strength of the pound over the past year has come from the belief among investors that the BoE is unlikely to cut rates as quickly as the European Central Bank or the Federal Reserve.

Friday39;s data on retail sales, which fell by the most in three years, did not shake that view not least because of figures earlier in the week that showed an unexpected rise in inflation in December but they did complicate the rate outlook.

The release has thrown cold water on the sterling rally after the CPIinduced gilt selloff this week, ING strategist Francesco Pesole said, adding that servicesector inflation was a higher priority for the BoE.

This means that a further repricing lower in BoE rate expectations would require markets…