LONDON (Reuters) — British retail sales grew robustly in October, an industry survey showed yesterday, though there were signs a strengthening downturn in the housing market was beginning to weigh on growth.

The Confederation of British Industry reported that its October retail sales balance — a proxy for sales growth — fell to +36 from September's six-year high of +49, in line with forecasts and the second-highest reading this year.

This growth was tempered by weaker demand for durable goods, which the CBI said dropped because of falling housing market activity. The sub-index on durable household goods fell to +22 from +54 points, the sharpest decline of any category.

That weaker demand may continue after mortgage lender Nationwide reported a bigger-than-expected 0.7 percent monthly drop in house prices for October. Over the past three months, British house prices have suffered their largest fall since early 2009.

The mixed retail and property data together sum up the policy conundrum facing the Bank of England as it decides whether to start a new bout of quantitative easing next week — strong current output growth, but a weak outlook.

Activity of all sorts is likely to suffer in early 2011, when a rise in value-added tax kicks in and spending cuts of around a fifth to the budgets of most government departments start to bite.

"Further out, the concern remains that consumers will rein in their spending in the face of serious headwinds. Given that consumer spending accounts for some 65 percent of GDP this would significantly limit growth prospects," said IHS Global Insight economist Howard Archer.

BoE policymaker Adam Posen — who voted for more QE earlier this month — said in an interview published yesterday that the economy was still weak despite the strongest six months of growth since 2000, and likely to suffer from the cuts.

"My forecast is the government's plans for 2011 and 2012 will have a material down-drag on inflation and on growth," Posen told The Times newspaper.

"Retailers expect sales growth to continue next month in the run-up to Christmas," said CBI economist Lai Wah Co. "We should also see more of a boost to sales as shoppers look to beat the New Year VAT rise."