Britain's shoppers rein in spending, first yearly decline since 2013

* UK retail sales decline y/y for first time since March

2013

* Monthly sales up 0.3 percent

* Data better than expected, but shows inflation impact

(Adds market reaction, economists)

By David Milliken and Paul Sandle

LONDON, Nov 16 (Reuters) - British retail sales recorded

their first year-on-year decline since 2013 last month as

consumers struggled with fast-rising prices and stagnant wages.

Although the fall was less severe than analysts had

expected, the official data showed a 0.3 percent year-on-year

fall in sales volumes -- the biggest since March 2013.

That partly reflected a very strong performance by retailers

in October 2016 which distorted the comparison.

"We are continuing to see an underlying picture of steady

growth in retail sales, although this October suffered in

comparison with a very strong October in 2016," ONS statistician

Kate Davies said.

Mild weather also put shoppers off buying winter clothes,

adding to the weakness in the figures.

But volumes were still far lower that they were before the

June 2016 vote to leave the European Union hit sterling and

drove up inflation.

Looking at the three months to October, which smooths out

monthly volatility in the data, sales growth picked up to 0.9

percent from 0.7 percent in the three months to September.

This meant sales volumes in the three months to October were

just 1.1 percent higher than the year before, the weakest growth

rate since May 2013.

Sterling rose slightly after the data and British government

bond prices edged down as the sales figures came in less weak

than suggested by a series of other surveys of retailers.

"This is in stark contrast to the survey data which were

pointing to an absolute bloodbath," Alan Clarke, an economist

with Scotiabank, said.

"Things are probably as bad as they are going to get, so I'd

be hesitant to extrapolate the downward trend too far," he said.

"Next (Frankfurt: 779551 - news) year should be a better year as lower inflation and firmer

wages reverse this year's downwards trend."

Economists taking part in a Reuters poll had predicted sales

would drop 0.6 percent on the year and grow just 0.1 percent on

the month, according to the median forecasts.

The ONS said monthly sales in fact rose by 0.3 percent along

with the minus 0.3 percent year-on-year figure.

SLOW DOWN

The Bank of England raised interest rates on Nov. 2, saying

it forecast household consumption growth, adjusted for

inflation, would slow to 1 percent next year from 1.5 percent.

It also said it expected inflation would peak in October

before slowly falling back towards its 2 percent target over the

next three years.

Official data earlier this week showed that consumer price

inflation held at a five-year high of 3 percent in October

while regular pay, adjusted for inflation, suffered its longest

run of falls in almost three years.

Recent reports from British retailers have also indicated

consumers may be tightening their belts.

Department store chain John Lewis has posted seven

straight weeks of sales decline, clothing retailer Next (EUREX: NXTJ.EX - news)

missed analysts' quarterly forecasts, and Marks & Spencer (Frankfurt: 534418 - news)

said it faced "stronger headwinds" in food and was

slowing openings of its upmarket convenience stores.

The ONS said that retail sales growth in cash terms slowed

to an annual 2.8 percent in October, down from 4.6 percent in

September and the weakest since June 2016.

The gauge of inflation used in the retail sales data, the

retail price deflator, dropped to 3.1 percent in October from

3.3 percent in September.

(Reporting by David Milliken and Paul Sandle Editing by William

Schomberg/Jeremy Gaunt)