Industrial output in Britain flatlined in September and retailers saw sales dwindle in October, data showed on Tuesday, fuelling concerns that the economy may contract in the final quarter of the year.

The slew of dire economic news will keep pressure on the government to find ways to boost growth without compromising its goal of erasing the country's huge budget deficit, while the risk of another recession raises the prospect of even more quantitative easing by the Bank of England.

Manufacturing output ticked up 0.2 percent in September, slightly more than analysts had expected but failing to reverse a 0.3 percent decline in August.

Lets not get carried away ... Surveys are already telling us that output is likely to have fallen in October, said Brian Hilliard at Societe Generale.

A wider measure of industrial output, which includes utility output and oil and gas extraction, was flat on the month, below forecasts for a 0.1 percent rise and after a 0.3 percent gain in August.

Britain's economy grew 0.5 percent in the third quarter, and the Office for National Statistics said the industry data would have a negligible downward effect on that figure.

Think-tank NIESR said its latest growth estimate showed the economy had maintained its momentum through October, growing by 0.5 percent in the rolling three-month comparison.

It is welcome news that the UK economy has continued to expand. But the UK faces significant headwinds from the euro area's sovereign debt crisis, NIESR said in a statement.

Last week, the institute forecast growth of 0.9 percent this year and just 0.8 percent next year and said it saw a near 50 percent chance of a renewed recession in Britain.

The debt crisis raging in the euro zone, Britain's main trading partner, and a tepid recovery in the United States -- the world's largest economy -- have also stoked fears the UK economy faces a rough ride.

Recent business surveys showed that growth in the country's dominant services sector slowed more than expected in October while manufacturing contracted at its fastest pace in more than two years.

Worries about the outlook prompted the Bank of England to restart its quantitative easing programme last month with an additional 75 billion pound injection of cash, and a growing number of economists think it may have to do more.

SHOP SALES SOFTEN

The bleak outlook has already pushed consumer morale back to recession levels and cash-strapped Britons are cutting back on all but essential spending.

British retail sales softened in October as careful shoppers kept their purses shut and cut back on non-food items, auguring badly for Christmas trade, the British Retail Consortium said on Tuesday.

Like-for-like retail sales values were 0.6 percent lower compared to October 2010. The value of total sales was 1.5 percent higher, though this still points to falling sales in real terms as inflation stood at 5.2 percent in September.

The BRC results demonstrate that austerity measures and the unfolding Euro-crisis continue to weigh heavily on consumer sentiment. This paints a bleak picture for the festive shopping period, said Jon Copestake, retail industry analyst with the Economist Intelligence Unit.

Weak October sales and profit falls from top store groups Marks & Spencer Plc and Primark further frayed retailers' nerves.

Disposable incomes have been squeezed by rising prices, muted wages growth and government austerity measures while shoppers worry about a stagnant housing market, job security and a fragile economic recovery.

Household spending remained subdued at the start of the current quarter, with a slight reduction in October from the previous month, Visa Europe's UK Expenditure Index, also published on Tuesday, showed.

The index, which includes a broader range of expenditure such as in restaurants or for culture, showed spending fell 0.9 percent on the month and 1.9 percent on the year in October.

The housing market -- a mainstay of consumer demand before the crisis -- is unlikely to drive growth any time soon.

The number of houses sold in England and Wales reached an 18-month high in October but prices kept falling, a survey by the Royal Institution of Chartered Surveyors showed on Tuesday.

(Additional reporting by Fiona Shaikh, and Naomi O'Leary; Editing by Catherine Evans)