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UPDATE 1-Hard Brexit fears dog sterling as retail numbers improve

* Graphic: sterling and gilt yields http://bit.ly/2dgAXn1

Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh

* Graphic: Trade-weighted sterling since Brexit vote http://tmsnrt.rs/2hwV9Hv (New throughout after retail sales data)

By Patrick Graham

LONDON, July 20 (Reuters) - Sterling dipped back below $1.30 on Thursday on concern UK ministers are prepared to walk away from Brexit talks without a deal.

The mood outweighed a slightly better-than-expected batch of retail sales numbers.

Sunny weather helped sales rise more strongly than expected in June and shake off a gloomier start to the year, offering some signs that the economy as a whole might be regaining speed after a lull.

That helped the pound recover some ground from a fall after Trade Minister Liam Fox told a radio interview the country could get by without a Brexit trade deal -- something many economists have warned could cripple business activity.

"Official comment this morning suggesting the UK can survive with no Brexit deal will likely outweigh (the retail sales numbers) on the pound (and) maintain the downtrend," said Neil Jones, head of hedge fund FX sales at Mizuho in London.

After blipping back above $1.30 immediately after the data release, sterling fell back to trade at $1.2980, reaching its weakest levels in a week.

It was 0.2 percent lower at 88.57 pence per euro.

The pound rose above $1.31 to 10-month highs earlier this week as the dollar fell across the board, and as investors bet the 25-basis-point cut in British interest rates after last year's vote for Brexit could be reversed in the coming months.

But BoE policymakers have made it clear that any monetary tightening will be data-dependent, and Tuesday's below-forecast consumer price numbers therefore fed doubt that rates could be tightened in the coming months.

The retail numbers have been volatile and generally weak in recent months, showing consumers are feeling the pain of inflation running above wage growth.

Thursday's numbers showed sales rose 2.9 percent in June compared with a year earlier and 0.6 percent on the month - both beating forecasts in a Reuters poll.

"It is no secret that there has been growing concern surrounding retailers (...), a viewpoint that is supported by this mornings release of annual results from Sports Direct which showed a drop of more than half in underlying profits," said David Cheetham, an analyst with brokerage XTB.

"However there is a sense that some of the doom and gloom may be a little overdone and going forward the market could well be a little too pessimistic with regard to the future prospects of retailers." (Reporting by Patrick Graham and Jemima Kelly Editing by Jeremy Gaunt)