UPDATE 2-UK retail sales jump boosts chances of recovery
* Retail sales rise more than forecast - CBI survey
* BoE funding scheme draws in more lenders
* Markets pare back stimulus expectations further
* Dip in consumer sentiment sends warning sign
By Sven Egenter and Olesya Dmitracova
LONDON, Oct 30 (Reuters) - British retail sales picked up more than forecast in October, a survey showed on Tuesday, boosting recovery hopes after last week's growth data showed the country had leapt from recession.
The survey among retailers also added to views that the Bank of England will not increase stimulus next week, in particular as the BoE's scheme providing cheap funds to banks drew in most of Britain's lenders, clearing the way for easier credit.
The Confederation of British Industry's distributive trades survey showed that the sales balance jumped to +30 from +6 in September, far above analysts' forecasts for +7.
Sterling hit a session high against the dollar and gilt futures extended losses after the data, as markets further pared back the chances of another round of quantitative easing purchases of government bonds.
"Given the key role of consumer spending, the survey provides a significant boost to hopes that the economy can keep growing in the fourth quarter following the better-than-expected third quarter GDP rebound," said IHS Global Insight economist Howard Archer.
"However, it remains to be seen if consumers will sustain their recent improved spending, given that they still face significant headwinds and consumer price inflation could well move back up in the near term," he added.
A monthly survey by the European Union showed that British consumer confidence fell to the lowest level since May.
Eonomists at RBS however became the latest in a string of BoE watchers to change their forecast for the central bank's decision at Nov. 8.
"There appears to be a waning enthusiasm among BoE policymakers for further QE gilt purchases, and recent data alleviate some of the near-term pressure," RBS economist Ross Walker said in a note.
The BoE has bought a total of 375 billion pounds' ($600 billion) worth of gilts, but central bankers are hoping that falling inflation and rising employment will allow Britons to increase spending and support the fragile economic recovery.
The retail survey added to upbeat GDP figures last week, which showed that Britain shot out of recession in the third quarter with quarterly growth of 1 percent.
"It is great news that last month's sales growth has continued into October at a much faster pace than expected and that this momentum is expected to continue next month, too," said Anna Leach, CBI head of economic analysis.
But any recovery in Britain's economy, which has not made up the output lost during the 2008-2009 slump, is widely expected to be slow as the euro zone debt crisis, the government's plan to reduce the budget deficit and tight bank credit weigh.
The Bank of England is pinning great hopes on a new scheme, which provides banks with cheap funding if they keep up or extend lending to businesses and households.
BoE data published on Tuesday showed that by the end of October 30 banks had signed up. These banks had 1.326 trillion pounds' worth of lending on their books at the end of June, which provides the basis for determining any increase in lending under the scheme.
Banks and building societies can borrow up to 5 percent of their stock of existing lending from the BoE under the scheme, plus any expansion of its lending during the period between the end of June and the end of 2013.
With the banks representing 80 percent of all lending, the scheme could therefore unlock at least some 66 billion pounds in cheap funding for the banks.
However, Barclays economist Chris Crowe cautioned that the scheme was unlikely to be a game changer.
"Most lenders still face balance sheet pressures, demand for credit among high-quality borrowers remains subdued, and lenders will be unwilling to lower credit standards to encourage additional borrowing," he said.