WRAPUP 3-UK inflation drops, economy shows signs of life

* UK inflation falls to 5-year low of 1.1 pct in Sept

* House prices rise at fastest pace since May 2007 - RICS

* Retail sales enjoy biggest boost in 5 months - BRC

* Britain on cusp of recovery in Q3 - BCC (Adds BoE's Bean in 10th and 11th paragraphs)

By Christina Fincher and Fiona Shaikh

LONDON, Oct 13 (Reuters) - British inflation fell more than expected to its lowest in five years, boosting expectations the Bank of England could increase the amount of monetary stimulus it is putting into the economy.

Separate surveys, meanwhile, showed the stimulus was already helping reverse a slide in house prices, buoy retail sales and push the economy closer to recovery.

Inflation fell more than expected to 1.1 percent in September but analysts said this probably represented the trough and price pressures would start rising again over the next few months, due to higher commodity prices and a reversal of the cut in value added tax.

The surprisingly large drop in inflation sent the pound to its lowest in more than six months against the euro as dealers bet Britain's central bank could take further measures to boost growth.

"I think it's minded to expand the quantitative easing programme. This just provides the additional reason to do it," said Amit Kara, economist at UBS.

The central bank has already cut interest rates to a record low of 0.5 percent and embarked on a 175 billion asset-buying programme, otherwise known as quantitative easing, in order to kick-start growth. It will decide next month whether to extend the programme.

A trio of surveys painted a broadly upbeat view of the economy, which analysts expect to return to growth in the third quarter after five consecutive quarters of contraction. The British Retail Consortium said retail sales rose in September at their fastest annual rate in 5 months, the British Chambers of Commerce said the economy was on the cusp of recovery and the RICS house price balance hit its best level since May 2007.

"The activity data shows the economy is heading in the right direction, the question is how quickly it gets there" said Malcolm Barr, an economist at J.P.Morgan.

Bank of England Deputy Governor Charles Bean said Britain's economy had probably hit bottom and the worst fears of earlier in the year were likely to be unfounded. [nLAC003496]

INFLATION TROUGHS

Speaking in London, Bean gave few hints on the BoE's next month but said the central bank wanted to see money circulating more rapidly through increased bank lending and deposit taking.

The extraordinary stimulus being pumped into Britain's economy has already given a boost to asset prices, with house prices turning higher after losing as much as a fifth of their value last year.

The Royal Institution of Chartered Surveyors said 22 percent more surveyors reported price rises in the last three months than price falls. That was the highest reading since May 2007, before money markets froze and sent the world's financial system to the brink of collapse.

"The housing rebound is being fuelled by cheap money and, with prices having fallen sharply, improved valuations," said Michael Saunders, an economist at Citi.

The British Retail Consortium said retail sales rose at their fastest annual pace in 5 months in September. But it cautioned the rise was skewed by base effects, following a slump in sales in the wake of Lehman Brothers' collapse last year, and the timing of the August bank holiday.

The BRC said the value of like-for-like sales rose 2.8 percent in September compared with a year ago, the biggest rise since April, when sales were bolstered by the timing of Easter.

In its quarterly survey of 5,500 firms, the British Chambers of Commerce said the pace of decline in domestic sales and orders was its slowest in more than a year.

The improvement in the survey was broad-based with almost all components returning to levels last seen before the collapse of U.S. bank Lehman Brothers last year triggered a global economic crisis.

However, the lobby group warned that conditions remained fragile.

"The Q3 results support our assessment that the UK economy is on the brink of leaving recession. However, the improvement is not sufficiently strong to allow us to conclude without doubt that GDP has already returned to positive growth," said BCC chief economic adviser David Kern. (Editing by Andy Bruce)