* CBI retail sales index partially recovers from Jan slump
* Retailers turning cautious as prices rise fast
* Investment and employment turn negative
* Other surveys: inflation expectations up, consumers worried (Adds comment, background)
By William Schomberg
LONDON, Feb 23 (Reuters) - British consumers returned to the shops this month but a sharp pick-up in inflation following last year's Brexit vote has made retailers more downbeat about the outlook, an industry survey showed on Thursday.
With the Bank of England and investors watching for how free-spending households react to higher prices, the Confederation of British Industry said on Thursday its retail sales balance rose to +9 this month after slumping to -8 in January.
A Reuters poll of economists had forecast the index would show a weaker rebound to 0.
Despite the stronger-than-expected improvement, there was wariness among retailers, who said they were raising their prices at the fastest pace in almost six years and that prices would rise even more rapidly next month.
For the first time in 4-1/2 years, retailers expect their business situation to deteriorate over the next three months, prompting them to scale back investment and hiring.
"As the impact of the weaker pound feeds through supply chains, retailers are trying to absorb some of the increase in their import costs through savings," CBI economist Ben Jones said.
Consumers helped Britain's economy to grow strongly in the second half of last year. But there have been signs recently that shoppers are reining in their spending.
Official data released last week showed shoppers bought less in January while inflation hit its highest level since mid-2014 at 1.8 percent.
A survey published on Thursday showed more than 20 percent of consumers are worried about the impact of Brexit on their spending plans over the next year and almost 60 percent said they lacked disposable income.
Bank of England Governor Mark Carney has said he is watching closely to see whether consumers rein in their spending this year, as the BoE has predicted, something which could slow the rise in inflation and reduce the need for higher interest rates.
On the other hand, higher inflation could feed through into higher pay pressures on companies, something the BoE would consider as strengthening the case for a rate hike.
Long-term inflation expectations among the British public hit their highest level in just over three years, bank Citi said on Thursday.
But separate data showed companies gave staff an average pay rise of just 2 percent annual in the three months to the end of January, unchanged from a year earlier. (Additional reporting by James Davey and David Milliken; Editing by Catherine Evans)