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* CEO says UK consumer environment likely difficult in 2017
* Next's Q3 total full price sales down 3.5 pct
* Cost savings allow maintenance of full-year profitforecast
* Shares rise up to 5 pct, down a third so far this year (Recasts with CEO, analyst comment, shares)
By James Davey
LONDON, Nov 2 (Reuters) - British clothing retailer Next said on Wednesday trading prospects would be tough nextyear after reporting another dip in quarterly sales, forcing thecompany to rely on further cost savings to maintain itsfull-year profit forecast.
Chief Executive Simon Wolfson said Britain's consumerclimate was likely to remain difficult as inflation rises andreal earnings are likely to be squeezed.
"The macro economic backdrop doesn't look exciting,"Wolfson, a Conservative Party member of Britain's upper house ofparliament and a supporter of Brexit, told Reuters. "It islikely we will have another year (with) a difficult consumerenvironment."
Next, which trades from about 540 shops in Britain andIreland, from franchised stores overseas and online, has beenBritain's most successful clothing retailer of the last decadebut it warned in March that 2016 could be its toughest yearsince 2008 and its shares have fallen by a third this year.
Wolfson said underlying demand for clothing has been weaksince October 2015, when he identified a cyclical move away fromspending on apparel back into areas that suffered the mostduring the economic downturn, such as eating out and travel.
A warmer than usual September also dented Next's full-pricesales for its third quarter to Oct. 31 which fell 3.5 percent.
That compared with analysts' forecasts of down 1.5 to 4.5percent and a second-quarter rise of 0.3 percent.
Next forecast full price sales for its year to January 2017in a range of down 1.75 percent to up 1.25 percent compared toprevious guidance of down 2.5 percent to up 2.5 percent.
The mid-point of Next's new sales guidance was marginallylower than previous guidance. But it said 6 million pounds ofnew cost savings, mainly from warehouse efficiencies, meant itscentral profit forecast for 2016-17 remained unchanged at 805million pounds ($985 million). It made 821 million pounds in2015-16.
That forecast and Next reporting a return to sales growth inOctober as comparative weeks last year were less challengingsent its shares as much as 5 percent higher.
"We remain buyers on the short-term outlook, cashgeneration, buy-back and valuation. But it is difficult to bepositive on strategy here," said Haitong analyst Tony Shiret,highlighting zero sales growth from Next's once high-flying"Directory" online and catalogue business.
Shares in rival Marks & Spencer, which updates ontrading next Tuesday, rose up to 2.5 percent.
Wolfson reiterated that in a "worst case scenario" costprices on like-for-like garments would rise by up to 5 percentin 2017 due to the fall in the pound since June's vote byBritain to leave the EU.
Next's investment plans were unchanged by the vote. "Ifanything the market for new stores has got slightly softer sinceBrexit - it's actually helping the supply of new space for thenew year," he said.
The CEO said talk of a "hard Brexit" that would seeimmigration controls take priority over membership of the EU'ssingle market was unhelpful.
"It all comes down to whether we want to build an openeconomy or a closed one," he said.
"If the government chooses to build an open economy with apositive approach to trade and towards investment andeconomically productive immigration then I think we've got everychance of making an enormous success of it.
"The important thing is the attitude with which they go intothe negotiations on those things."($1 = 0.8175 pounds) (Editing by Paul Sandle and Jane Merriman)
