Retailers ease Christmas fears as gloom lingers

By Mark Potter and James Davey

LONDON (Reuters) - A string of retailers eased fears of a collapse in consumer spending over Christmas but warned on Tuesday that rising unemployment and plunging house prices would blight trading for months to come.

The cautionary comments from companies including fashion chain Next (NXT.L) and department stores group Debenhams (DEB.L) were backed by economic surveys showing tumbling house prices, a weakening services sector and sliding consumer morale.

The data and retail pessimism kept pressure on the Bank of England to deliver another big cut in interest rates from the current two percent when it announces its decision on Thursday.

Economists are forecasting a cut to 1.5 percent, taking rates to their lowest level since the Bank was set up in 1694.

Britain has slashed interest rates by 300 basis points since October and cut taxes in a bid to ward off a deep recession. But a stream of gloomy economic news and retail business failures suggests worse is still to come.

The Nationwide Building Society reported a record 15.9 percent annual drop in house prices and sliding consumer confidence in December.

Another survey showed the services sector -- which accounts for three-quarters of the British economy -- contracting at a near-record pace and shrinking for the eighth month in a row..

There were "few meaningful signs of any turnaround," said RBS economist Ross Walker.