LONDON, Aug 4 (Reuters) - Next (NXT.L), Britain's No.2 fashion retailer, reported a marked slowdown in consumer spending and said strong online sales would help it to meet profit expectations in a tougher second half.

www.next.co.uk

"There has been a noticeable cooling in retail demand in recent months," Next said on Wednesday.

"We believe that consumer spending will be more restrained in the second half than in the first, as (public) spending cuts and tax rises begin to take effect," it said. referring to recent government moves aimed at reducing state borrowing.

Next, which runs over 500 stores in Britain and Ireland, said first-half sales at shops open at least a year fell 1.5 percent, down from a 0.8 percent decline reported after the first quarter and towards the bottom of analysts' expectations.

However, sales at its Directory home shopping business climbed 7.8 percent, towards the top end of forecasts.

The group said it expected underlying retail sales to fall by 1.5 to 4.5 percent in the second half, with Directory sales up 4 to 8 percent.

Gross profit margins increased in the first half and full-year profit would rise 6 to 11 percent to 535 million to 560 million pounds, broadly in line with analysts' expectations, it added.

Next shares have beaten the STOXX 600 European retail index .SXRP by 3 percent this year and trade at 10.6 times forecast earnings, below bigger rival Marks & Spencer (MKS.L) on 11.5.

(Reporting by Mark Potter; editing by Karen Foster)