* Sees yr pft 250-255 mln stg, previously said 263 mln stg
* Sees Argos lfl sales down low to mid-single digit 2011-12
* Sees Homebase lfl sales broadly flat 2011-12
* CEO says John Lewis too bullish on UK spending
* Shares down 6.4 percent
(Adds detail, BoE rates decision, analyst comments, shares)
By James Davey
LONDON, March 10 (Reuters) - Home Retail, Britain's No. 1 household goods retailer, delivered a profit warning and grim forecast for 2011-12, raising fears of a major downturn in consumer spending.
"Even some of the promotional activity is not prompting a positive response," Chief Executive Terry Duddy told reporters on Thursday.
Shares in the owner of Argos and Homebase stores fell 6.4 percent after news that trading in January and February proved more difficult and volatile than expected.
The retailer's cash-strapped low income customers cut back on non-essentials, particularly video gaming and audio products.
British consumers have been increasingly unwilling to spend as muted earnings growth and higher inflation, fuelled by January's rise in VAT (sales tax) and hikes in oil and food prices, bite into real incomes.
They are also worried about job losses and welfare reductions related to government spending cuts, as well as the prospect of higher interest rates.
Although the Bank of England kept interest rates at a record low of 0.5 percent on Thursday most economists expect a rise before the end of the year.
Some retail analysts fear rate rises could trigger a rapid deterioration in retail spending as the proportion of mortgage holders on fixed rates has fallen 40 percent since 2007.
On Tuesday, a survey showed British retail sales in February fell at their fastest annual pace in 10 months.
On Wednesday John Lewis, Britain's biggest department store operator and owner of the Waitrose supermarket chain, said it expected a return to slow growth in consumer spending after Easter.
Duddy suggested that was too bullish.
"Where John Lewis, I think, have some optimism, I do not think it is really backed by any event that would dictate that happening," he told reporters.
Duddy said he was being "stark and realistic" in forecasting low-to-mid single digit like-for-like sales declines at Argos in 2011-12, with do-it-yourself chain Homebase broadly flat, and a marginal reduction in Argos's gross margin and a marginal improvement at Homebase.
He said he had no plans to rationalise the firm's portfolio of nearly 1,100 stores.
Separately on Thursday Wm Morrison Supermarkets, Britain's fourth-biggest grocer, posted a slowdown in sales growth in recent weeks.
STRUCTURAL AND CYCLICAL ISSUES
Shares in Home Retail were down 13.4 pence to 197.55 pence at 1238 GMT, valuing the business at 1.59 billion pounds ($2.57 billion) having lost nearly a quarter of its value over the past year prior to Thursday's announcement.
"Argos is suffering both structural and cyclical issues and we see little evidence that either of these is going to change," said Liberum Capital analyst Simon Irwin, who cut his 2011-12 profit forecast by 14 percent and expects the dividend that year to be cut by 25 percent.
Home Retail said it now expected pretax profit for the year to Feb. 26 2011 to be between 250 million pounds and 255 million pounds, down from 293 million pounds made in 2009-10.
In January the firm had forecast a year profit of about 263 million pounds.
It said sales at Argos stores open over a year fell 4.6 percent in the eight weeks to Feb. 26, a period flattered by a snow-impacted comparative period in 2010.
That was worse than a forecast for a 1.3 percent fall, according to a company poll, and compared with a fall of 4.9 percent in the 18 weeks to Jan. 1.
Like-for-like sales at Homebase rose 3.8 percent, better than an expected rise of 0.3 percent and a fall of 1.2 percent in the earlier period.
Gross margin fell 150 basis points at Argos but was up 300 basis points at Homebase.
(Editing by Sophie Walker and Elaine Hardcastle) ($1 = 0.6185 pound)