(Adds BRC retail sales, RICS housing market survey, details)
By Fiona Shaikh and Sumeet Desai
LONDON, Feb 10 (Reuters) - Britain's goods trade gap with the rest of the world narrowed to its lowest level in 1-1/2 years in December as imports fell in a sign the weak pound and economic recession is cutting demand for overseas goods.
One survey showed the fall in house prices accelerated in January. Another indicated the first rise in the value of retail sales since May, but analysts said any hope of a recovery on the high street was overly optimistic as the recession gets under way.
The Office for National Statistics said Britain's global goods trade gap fell to 7.367 billion pounds ($11 billion) from 8.114 billion in November -- the lowest since June 2007 and compared with forecasts for a deficit of 8.1 billion pounds.
The goods trade deficit for 2008 as a whole still came in at record levels -- widening to 93.2 billion pounds from 89.3 billion pounds in 2007.
December's improvement was driven by a 2.5 percent drop in imports on the month, with imports from outside the European Union down by 4.5 percent. Exports rose by 0.5 percent.
"The improvement is basically to do with weak domestic demand rather than a pick-up in exports, even if we did see some improvement in exports in the month," said Ross Walker, UK economist at RBS Financial Markets.
The goods trade gap with non-EU countries also narrowed more than expected, to 4.214 billion pounds from 5.214 billion in November. Exports to non-EU countries shot up 4.9 percent but again analysts said weak global demand meant it was too early to say they were on a rising trend.
STERLING EFFECTS
Bank of England policymakers have said they expect the weaker pound -- which has hit a record low against the yen and 23-year lows against the dollar this year -- to boost demand for British goods overseas and help cushion the economic downturn.
However, economists say that boost may be a while in coming.
"We're very hopeful that as global activity picks up we'll see a significant stimulus to the UK," said David Page, economist at Investec.
Currencies and trade are becoming a key issue for global policymakers as the global economy weakens and authorities around the world act to reduce the severity of the downturn.
Britain has already faced criticism from its main trading partner -- Europe -- over the pound's fall because it may harm the competitiveness of industry on the continent.
The United States and China have also exchanged words over currency and trade imbalances and there are growing fears that a retreat into trade protectionism will hamper any recovery.
In separate data, the Royal Institute for Chartered Surveyors said the pace of declines in house prices picked up last month as the downturn shows little sign of easing, despite interest rates falling to a record low of 1 percent this month.
The British Retail Consortium reported a surprise rise in retail sales -- the first since May 2008 -- with higher food sales helping to improve the overall picture in January.
"While the good news makes a welcome change, we doubt that the economy has turned a corner," said Vicky Redwood, an economist at Capital Economics. (Additional reporting by Matt Falloon, editing by Stephen Nisbet)