* Year underlying profit up 48 percent to 546 million sterling
* Earnings boosted by Somerfield and Britannia deals * Grocery like-for-like sales down 2.5 percent
(Adds detail, background)
LONDON, March 30 (Reuters) - The Co-operative Group, Britain's biggest mutual retailer, does not expect a recovery in consumer spending until next year, it said on Wednesday, as it posted a jump in annual profit thanks to acquisitions.
"We had hoped to see signs of economic recovery by the start of 2011, but the downturn is clearly biting deeper than we had expected," Chief Executive Peter Marks said.
"We now anticipate challenging trading conditions through to the end of this year and into 2012."
A procession of British retailers have reported worsening trade since Christmas as household incomes are squeezed by rising prices and government cutbacks, raising fears that a fragile economic recovery could be derailed.
Dixons Retail, Britain's biggest electricals goods retailer, issued a profit warning on Wednesday.
The Co-op, whose businesses span food stores, financial products, pharmacies and funeral services, said 2010 underlying profit before payments to and on behalf of members rose 48 percent to 545.7 million pounds ($872.1 million).
Earnings were boosted by the 2008 purchase of Somerfield food stores and a merger with the Britannia Building Society.
The Co-op, which pays out a dividend to members depending on how much they spend with the group, said the dividend to customers rose 55 percent to 77.4 million pounds.
Food sales climbed 4.8 percent to 7.2 billion pounds, but were down 2.5 percent at outlets open over a year.
The Co-op, which traces its roots to the founding of the co-operative movement in Rochdale, northwest England, in 1844, is Britain's fifth biggest food retailer. ($1=.6257 Pound) (Reporting by Mark Potter; Editing by Jon Loades-Carter)