LONDON (Reuters) – Kingfisher, Europe's biggest home improvement retailer, beat first-half profit forecasts, helped by cost-cutting and business improvements that it said would help it to cope with a tough consumer outlook.

The group, which runs market leader B&Q in Britain and the Castorama and Brico Depot chains in France, said yesterday it made a profit before tax and one-off items of £354 million ($549 million) in the 26 weeks to July 31.

Analysts' mean forecast was 342 million in a company poll.

"The immediate outlook for consumer spending is fragile, particularly in the UK where it is likely to remain challenging for some time," said CEO Ian Cheshire.

"Our continued profit growth will come from our well-established self-help initiatives."

Britain's retailers are battling to emerge from a long and deep recession and fear steps to rein in government borrowing, like higher taxes and public spending cuts, could hit demand in the months ahead.

Kingfisher, which runs over 830 stores in eight countries, reported a 1.3 percent fall in first-half underlying sales in July, hit by a particularly weak performance in Britain.

But gross profit margins rose 140 basis points in Britain and 100 basis points in France as the group continued a drive to cut costs and buy more products centrally, and directly, from cheaper manufacturing countries like China.

Kingfisher kept its interim dividend at 1.925 pence a share.

Its shares have underperformed the STOXX 600 European retail index by 12 percent this year.

They closed at 218.9 pence on Wednesday, valuing the firm at £5 billion.