Weak data deepen economic gloom

By Kate Kelland and Sumeet Desai

LONDON (Reuters) - Britain is edging closer to recession with data on Tuesday showing sales down, house prices crumbling, factory output falling for a fifth month and firms more reluctant to hire than at any time in almost 15 years.

Retail sales fell for a third month in August as wet weather kept people out of the shops, according to the British Retail Consortium. Another industry survey showed house prices fell again in the three months to August with the average number of home sales per surveyor hitting a record low.

Factory output fell 0.2 percent on the month in July, marking the longest stretch of monthly declines in seven years for British manufacturing as falling house prices and high food and fuel costs force consumers to cut back on other spending.

The data knocked sterling to session lows of $1.7507 and 80.50 pence a euro and briefly boosted December interest rate futures as investors weighed the chances of a Bank of England rate cut this year.

The central bank held interest rates at 5 percent last week for the fifth month running but expectations are growing that a sharply slowing economy could persuade it to cut rates once inflation peaks in the next couple of months.

"July's industrial production figures showed that the manufacturing sector is all but in recession, while August's BRC Retail Sales Monitor suggested that the consumer sector is not that far behind," said Paul Dales of Capital Economics.

"We continue to think that the economy as a whole will contract by around 0.2 percent next year."

The UK economy stopped growing in the April-June period, its weakest performance since the recession of the early 1990s.