Retail sales edge down

By Fiona Shaikh and Matt Falloon

LONDON (Reuters) - Shoppers barely trimmed their spending in September, even as the world's financial system teetered on the brink of collapse, threatening to drag the economy down with it.

The Office for National Statistics said retail sales fell 0.4 percent last month, taking the annual rate of growth down to 1.8 percent, its weakest since February 2006.

But the figures were not as bad as analysts' forecasts for a monthly fall of 0.9 percent and an annual rate of 2.0 percent growth.

The official data has been surprisingly resilient this year given weak readings in other monthly surveys and gloomy news from retailers.

Thursday's figures were more in line with retailers' own gloomy reports and less formal industry surveys that indicate that consumption -- the engine that has driven British growth for years -- is finally running out of steam.

Bank of England Governor Mervyn King and Prime Minister Gordon Brown have said that Britain is on the verge of its first recession in 16 years and third-quarter growth data due on Friday could show the economy is already in decline.

"These figures add to the host of economic data released over the past few weeks showing that, whether or not the government's measures put the banking sector back on its feet, a sharp economic slowdown is well under way," said Vicky Redwood, economist at consultancy Capital Economics.

Most economists in a Reuters poll expect the Bank of England will repeat this month's half percentage point cut in borrowing costs in November to shore up the economy. Some even see rates falling below 3 percent next year from the current 4.5 percent.