Retail sales held up unexpectedly well over past months and car production rose in November, providing a rare glimmer of hope that Britain might avoid a renewed recession.

Britain's retailers have been under heavy pressure over the past year and high street discounting has been rife in the key pre-Christmas trading period. Consumers are holding back spending as prices rise faster than wages, and rising unemployment and a slew of bad economic news are weighing on morale.

But on Thursday, the Office for National Statistics said that despite a monthly drop of 0.4 percent in November, retail sales volumes rose 0.7 percent over the past three months compared to the previous three, the strongest gain since August 2010.

Excluding fuel, retail sales dropped 0.7 percent on the month - more than analysts had forecast.

Retail sales have posted a fairly firm run over the prior months, so it's not at all that surprising to see a retracement of volumes in November, said Investec economist Philip Shaw.

But the outlook for the economy and consumer spending specifically remains uncertain.

Prospects for the British economy are poor and growth is expected to stay well below 1 percent next year.

Policymakers have warned the economy may shrink in the final quarter of 2011 as the euro zone crisis hits business confidence and exports, and more and more economists are pencilling in a new recession.

But car manufacturers -- one of the few bright spots amid the gloom -- cranked up production by 8.5 percent in November compared to last year.

UK vehicle and engine production continues to lead a manufacturing recovery, said Paul Everitt, chief executive of industry lobby group SMMT. Despite the challenges in the euro zone, the UK motor industry expects further growth in 2012.

RECESSION FEARS

Consumers' reluctance to spend has hit retailers hard and a number of well known firms have collapsed. Even giants like supermarket chain Tesco are feeling the pain.

Retailers are nervous about spending in the run-up to Christmas. On Tuesday, Carpetright, Britain's biggest floor coverings retailer, posted its worst first-half performance ever as a listed company.

Some firms are coping better than others. On Thursday Sports Direct, the UK's biggest sporting goods retailer, posted a 2 percent rise in first-half profit and said it was on track to meet its target for the year.

The Bank of England, which launched a second round of asset purchases in October to support the economy, expects some relief for consumers next year when inflation is seen falling sharply.

The BoE's November inflation attitudes survey showed that average public inflation expectations for the next 12 months edged down to 4.1 percent, compared to the three-year high of 4 .2 percent in the August poll and the BoE's 2 percent target.

But with unemployment at its highest level in 17 years, a renewed slump looming and banks reluctant to lend, consumers look unlikely to provide the economy with a major boost any time soon.

(Reporting by Sven Egenter; Editing by John Stonestreet)