Almost two thirds of traders said they expected sales to be at least the same or better than last year, according to a survey by the British Retail Consortium (BRC).
Stores are stepping up their discounting with 41 per cent offering more than last year.
Seventy one per cent of retailers think the January rise in VAT to 20 per cent means customers are bringing forward purchases.
However, eight out of ten expect the VAT change to have a negative impact on sales in January, the Christmas trading survey found.
British Retail Consortium director general Stephen Roberston said: “It’s reassuring to see a majority of retailers believe Christmas sales will be at least as good as last year even if a third say they will be worse.
“But, considering inflation is now at 3.2 per cent, growth of anything less then that would be a real-terms fall.
“Promotions have hit a new level of intensity, retailers believe the next VAT rise is bringing sales forward and Christmas is usually a time when people spend despite their economic worries but ultimately December could prove to be the ninth month in a row of weak year-on-year growth.”
Those surveyed were also asked what impact they felt when VAT was restored to 17.5 per cent in January this year, after being reduced in an attempt to breathe new life into high street sales after the finacial crisis took its toll on consumers.
A total of 18 per cent said sales went down while 64 per cent said they had seen no impact.
The survey – of 17 major retailers covering 51 per cent of the UK’s retail turnover – was conducted between 22 November and 1 December 2010.