March 24, 2016 / 9:33 AM / in a year

British consumers defy weaker outlook for economy

LONDON (Reuters) - British consumers are still driving the country's recovery despite a gloomier outlook for the economy and the approach of the European Union membership referendum, figures released on Thursday showed.

Official data showed retail sales fell more gently than expected in February after a bumper January.

A separate survey by the Confederation of British Industry showed sales volumes fell slightly in March but retailers were optimistic about April.

"It's encouraging to see that sales are holding up and expectations have picked up further," Rain Newton-Smith, the CBI's director of economics, said.

There have been some signs that Britain's economy slowed in early 2016 and the government's official budget forecasters last week cut estimates for growth until the end of the decade.

But spending by consumers is holding up, for now.

Andrzej Szczepaniak, an economist at Barclays, said private consumption growth would dip only slightly in early 2016 but "uncertainty emanating from the outcome of the upcoming EU referendum is likely to dampen currently buoyant levels of consumer confidence and delay household spending decisions".

Shoppers are reflected in a store window as they pass sales advertisements on Oxford Street in London, Britain December 26, 2015.Neil Hall

Britain is due to vote on June 23 on whether to stay in the EU.

The Office for National Statistics said retail sales volumes dropped 0.4 percent last month after a 2.3 percent surge in January. The decline was more modest than a fall of 0.7 percent which economists taking part in a Reuters poll had forecast.

The ONS said unusually bad weather last month appeared to have hit demand for spring and summer clothing, and clothing sales in the three months to February showed the biggest fall since December 1990.

Compared with a year earlier, overall retail sales in February grew 3.8 percent, slowing from January but in line with expectations.

Consumers have been buoyed by record employment, modestly rising wages and near-zero inflation. The Bank of England says household consumption will grow faster than the overall economy this year.

Data released on Thursday by Britain's main banking association showed annual growth in consumer credit edged up to its fastest pace since before the financial crisis, but the BoE says the recovery is not being fuelled by risky lending.

Many retailers have resorted to steep discounts to attract shoppers. Clothing retailer Next said on Thursday it might be facing its toughest year since 2008, when the global financial crisis tipped Britain into recession.

Additional reporting by james Davey Editing by William Schomberg/Jeremy Gaunt

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