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UK consumers remain cautious as BoE meets on rates

People shopping on Oxford Street in central London

By Andy Bruce

LONDON (Reuters) - British retail sales flat-lined in late December and early January, according to a survey that showed no change in weak consumer spending ahead of the Bank of England's finely balanced decision whether to cut interest rates this week.

Other recent surveys have pointed to a jump in optimism among businesses and households after Prime Minister Boris Johnson's landslide election win last month.

But the Confederation of British Industry's monthly retail sales gauge was steady at zero in January and retailers cut orders with suppliers as stocks of goods built up.

"The CBI distributive trades survey pointed to stable, lacklustre retail sales in January, thereby suggesting that the decisive general election result failed to give an imminent boost to consumer spending," said economist Howard Archer of the EY ITEM Club consultancy.

Allan Monks, an economist at JP Morgan, said he thought the BoE's Monetary Policy Committee would not announce a rate cut on Thursday after the signs of a pickup in confidence, the housing market and job creation.

"Most on the MPC will probably have made up their minds by now. But this is a survey which we think will appeal to the doves as part of a decision to vote for lower rates," he said.

There were some hints of an improvement in the CBI's data. Sales avoided their usual fall in the first month of the year and for the three months to January, its measure of retail sales was the strongest in a year.

But the CBI described the outlook for retailers as tough.

"A challenging Christmas has extended into the New Year, with little expectation of any improvement soon," CBI deputy chief economist Anna Leach said.

The boss of electronics group Dixons Carphone <DC.L> said last week he was not counting on the British consumer market improving, although the owner of the Primark clothing brand <ABF.L> said there was too much gloom about the outlook, citing Britain's sound economic fundamentals.

Economists say the BoE is likely to take some comfort from official data last week which showed stronger-than-expected job creation in the three months to November.

But policymakers are also likely to worry about a drag on the economy from uncertainty about Britain's chances of striking a trade deal with the European Union before a deadline at the end of December.

Britain is due to leave the EU on Friday when an 11-month, no-change transition period will begin.

Economists polled by Reuters expect a 6-3 vote by the MPC to keep rates at 0.75%. The decision is due to be announced at 1200 GMT on Thursday.

The CBI survey was based on the responses of 51 retailers between Dec. 16 and Jan. 14.

(Reporting by Andy Bruce; Editing by William Schomberg and Giles Elgood)