Britain's fourth-biggest grocer Wm Morrison Supermarkets said the UK grocery market was likely to remain subdued in the coming year despite easing inflationary pressures as it posted a 8 percent rise in year profit.

We expect a challenging year in 2012, the firm said on Thursday, adding that it still expected to deliver profitable growth.

Morrisons, which trails Tesco, Wal-Mart's Asda and J Sainsbury in UK market share, posted a profit before tax and one-off items of 935 million pounds in the year to January 29, helped by a focus on fresh foods and low prices.

That compared to analysts' average forecast of 922 million pounds, according to a company poll, and 869 million pounds made in the previous year.

Turnover rose 7 percent to 17.7 billion pounds, with sales at stores open at least a year up 1.8 percent, excluding fuel and VAT sales tax.

Britain's retailers are mostly struggling as shoppers are hit by rising prices, muted wages growth and government austerity measures, and worry about a stagnant housing market, job security and the impact of the euro zone debt crisis.

Morrisons, which runs nearly 500 superstores and unlike rivals produces much of the food it sells, has been modernising its core chain as well as diversifying into non-food, e-commerce and convenience stores through trials of the M-Local sub-brand.

The firm raised its dividend by 11 percent to 10.7 pence a share.

Shares in Morrisons, which have lost 11 percent of their value over the last three months, closed Wednesday at 283.3 pence, valuing the business at 7.09 billion pounds.

(Reporting by James Davey; Editing by Neil Maidment)