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* Q3 retail sales growth slows to 3.1% from Q2 3.6%
* Spending rising at weakest pace since Q2 2016
* Department stores report biggest fall in sales since 2009

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By David Milliken and Jonathan Cable
LONDON, Oct 17 (Reuters) - British shoppers grew more
cautious about their spending in the three months to September
despite rising wages, official figures showed on Thursday,
raising concerns about the health of the economy in the run-up
to Brexit.
Consumer spending has been the biggest driver of British
economic growth since June 2016's referendum to leave the
European Union, but there have been increasing signs that this
is starting to soften.
Looking at the third quarter as a whole, which strips out
monthly volatility, quarterly sales growth held steady at 0.6%
while the annual pace of expansion dropped to 3.1% from 3.6% in
the second quarter, the weakest since the late 2018.
Stripping out inflation adjustments, growth in retail
spending was the weakest in more than three years.
Sterling showed little reaction to the data, with markets
focused on whether Prime Minister Boris Johnson can broker a
Brexit deal that is acceptable both to Brussels and Britain's
parliament before the country is due to leave on Oct. 31.
"September's retail sales figures were perhaps a bit of a
relief given the intense Brexit uncertainty, but were hardly a
picture of strength," economist Ruth Gregory of consultancy
Capital Economics said.
Monthly retail sales volumes were flat in September and
annual sales growth picked up to 3.1% from a weak 2.6% in
August, the Office for National Statistics said - slightly less
of a recovery than economists had forecast in a Reuters poll.
"Food shops bounced back after a weak few months, but there
was yet more bad news for department stores, with sales
continuing to fall in September," ONS statistician Rhian Murphy
said.
Some retailers said unusually rainy weather had hurt demand
too, the ONS added.

DEPARTMENT STORES DOWN
Sales in the 'non-specialised stores' category - which
includes department stores - dropped by an annual 2.0% in the
third quarter, the biggest decline since the first three months
of 2009 when Britain was mired in recession.
At the start of this month, major retailer John Lewis
Partnership said it would cut a third of senior managers and
merge its supermarket and department store divisions to better
tackle challenges from online stores.
The lacklustre ONS figures are less bleak than a British
Retail Consortium survey that showed the biggest fall in retail
spending of any September since at least the mid-1990s.
In recent months, surveys by the BRC and Confederation of
British Industry have painted a weaker picture of the retail
sector than subsequent official data - in part due to the former
focusing more on large high-street chains.
The ONS data has a broader sample that includes more online
and small retailers, and its measure of retail spending showed
annual growth slowing to 3.5% in the third quarter from 4.1% in
the second quarter, the weakest since the second quarter of
2016.
Until recently consumers appeared to have largely taken
Brexit in their stride, helped by weaker inflation and stronger
growth in wages which are rising at the fastest pace in more
than a decade.
That has aided the world's fifth-biggest economy at a time
when many companies have been cutting back on investment because
of uncertainty about Brexit.
A separate Bank of England survey on Thursday showed British
lenders expect business loans will dry up in the next few months
at the fastest rate since the financial crisis, boding poorly
for investment as Brexit nears.
There have also been signs that consumers are turning more
cautious as Britain's political crisis drags on.
Several British retailers, including supermarkets Asda
and Morrisons and home improvement group
Kingfisher , have highlighted the drag of Brexit
uncertainty on bigger purchases.
But clothing retailer Next attributed a
disappointing start to autumn trading to unusually warm weather
in parts of Britain, rather than shoppers holding back on buying
new items because of Brexit.

(Reporting by David Milliken;
Editing by Alison Williams)