UPDATE 1-UK retailers cut jobs by most since 2009, CBI says

* CBI retail employment index at lowest since Feb 2009

* Sales in August unexpectedly fall

* Retailers wary of incomes crunch, second COVID wave

* Economist says consumer spending could drop after Q3
(Adds detail)

By David Milliken

LONDON, Aug 25 (Reuters) - British retailers have cut the
most jobs since the depths of the financial crisis and expect
the pace of losses to accelerate, the Confederation of British
Industry said, adding to warning signs of an expected sharp rise
in unemployment.

Tuesday's data also showed an unexpected drop in sales this
month, which contrasted with a recent pick-up in demand by
consumers after the coronavirus lockdown was lifted.

"Trading conditions for the retail sector remain tough," CBI
economist Alpesh Paleja said.

"...Firms will be wary of deteriorating household incomes
and the risk of further local lockdowns potentially hitting them
in the pocket for a second time."

Well-known British retailers Marks & Spencer,
Debenhams and WH Smith have announced job
losses in recent weeks, reflecting a shift in demand to online
sales during the pandemic.

Tesco, Britain's biggest supermarket, said on
Monday it would create 16,000 permanent roles to meet a surge in
home deliveries.

Quarterly CBI figures showed the employment balance - which
measures job changes over the past 12 months - sank to -45 in
August from -20 in May, reaching its lowest since February 2009.
A deeper fall is expected later this year.

The drop in the monthly retail sales balance was unexpected,
falling to -6 in August from July's 15-month high of +4 and
below all forecasts in a Reuters poll of economists.

Figures last week showed the volume of retail sales rose
above pre-pandemic levels in July.

Howard Archer, an economist with forecasters EY Item Club,
said he still thought consumer spending was headed for a
substantial rebound in the third quarter.

"However, the weaker-than-expected August CBI survey is a
reminder that there is considerable uncertainty as to just how
willing and able consumers will be to spend beyond the third
quarter," he said. "Indeed, persistent consumer caution is seen
as a significant risk that could limit the UK recovery."

Retailers in the CBI survey said spending in August was 27%
below normal compared with a 79% shortfall in June - a disparity
not shown in other figures, which may reflect how social
distancing requirements have had a much bigger impact on some
sectors - such as high street clothing retailers - than others.

The CBI survey was based on responses from 63 retail chains
collected between July 28 and Aug. 14.
(Reporting by David Milliken
Editing by William Schomberg and John Stonestreet)