M&S profit tops hopes

By Mark Potter and James Davey

LONDON (Reuters) - Confidence about economic recovery appears to be building, though companies remain wary and are still relying heavily on cost cutting to boost profits.

Clothing retailers Marks & Spencer (MKS.L) and Next (NXT.L) beat profit and sales forecasts respectively on Wednesday, while builders Taylor Wimpey (TW.L) and Redrow (RDW.L) highlighted a pick up in the housing market, lifting shares in all four firms.

But the companies also said their performance was flattered by extremely weak trading in the same time last year following the collapse of U.S. bank Lehman Brothers, and were worried about taxes rising next year to address rising government debt.

"What we can say with some certainty is that the consumer is not in freefall and we're seeing stability, if somewhat subdued stability, in consumer spending," Next Chief Executive Simon Wolfson told Reuters.

"(But) no one quite knows what the effect of increased taxation is going to be next year."

Hopes of quick economy recovery in Britain were dealt a blow last month when official data showed an unexpected drop in activity in the third quarter, making the current recession the longest ever.

The Nationwide consumer confidence index showed on Wednesday that consumer morale hit its highest level in the last two months since April 2008. But that survey was taken before the third-quarter growth data.

"I think we've been through the worst of the downturn," Marks & Spencer (M&S) Chairman Stuart Rose told reporters.