Britain's retailers performed better than feared during the Olympics in August and manufacturers' order books improved this month, bolstering hopes that the economy is creeping out of recession even though dangers still loom large.
Retail sales dipped 0.2 percent in August as Britons abandoned online shopping to watch the Olympics on television, the Office for National Statistics (ONS) said on Thursday. That was better than a 0.4 percent drop forecast by a Reuters poll.
Non-store retail volumes fell 6.7 percent -- the sharpest monthly drop in the predominantly online shopping sector in nearly five years.
Offsetting this decline, retailers of sporting goods reported higher sales.
Meanwhile, the CBI's monthly industrial trends survey showed factory orders improved more than expected in September, with the orders balance climbing to -8 from -21, raising the prospect of stronger production ahead.
Britain's economy has contracted for three straight quarters, having plunged back into recession at the end of 2011.
Economists polled by Reuters, however, forecast growth of 0.6 percent between July and September, helped by sales of tickets to the London Olympics and a rebound from the negative effect of an extra public holiday in June.
Even cash-strapped consumers are seen adding to growth over the third quarter as retail sales rose by 0.6 percent between June and August compared to the previous three months.
But the fragile economy remains in the danger zone as its largest trading partner - the euro zone - slips deeper into recession, and higher fuel and food prices threaten to eat away meagre wage rises and sap consumers' spending power.
GLIMMERS OF HOPE
Many economists said Thursday's figures were positive.
"We would not interpret the (August) fall in sales as being too bad a result," said BNP Paribas economist David Tinsley.
"The level of retail sales is still hovering around considerably higher levels than it averaged in 2011, indicating there has been some more momentum to consumer spending recently."
As the euro zone debt crisis and the government's austerity measures continue to weigh on sentiment, the Bank of England is expected to add more stimulus and the government remains under pressure to get a meaningful recovery going.
Britons have cut back spending as high inflation, tax increases and slow wage rises have put the tightest squeeze on incomes for more than 30 years.
But easing inflation and lower unemployment should relieve some of the pressure on Britons' incomes and support confidence in the months ahead.
However, a meaningful economic recovery looks still some way off.
"Uncertainty is expected to build through the autumn - with key decisions to be made in the euro zone and the approach of the U.S. fiscal cliff - meaning that conditions are likely to remain difficult for UK manufacturers," said CBI's head of economic analysis Anna Leach.
The latest business survey for the euro zone showed that the common currency area is sinking deeper into recession, causing fresh concerns for Britain's exporters.
Consumers, meanwhile, face fresh dangers to their budgets as rising oil prices push up costs of fuel and energy.
"With risks to inflation coming from loose monetary policy worldwide, rising oil prices, and poor food harvests, further robust growth in the retail sector is by no means guaranteed," said Gregory Sutton, economist at consultancy CEBR.