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Christmas retail sales in the UK are expected to reach almost £12 billion this year, according to a new report.

The figure represents a five per cent increase on last year's festive spending levels, says the British Retail Consortium (BRC).

But it warns while the rise will be a welcome Christmas gift for struggling retailers, much of the sales growth will be driven by discounting.

The warning comes amid growing concerns among high street chains their sales may slump in the coming months due to the impact of higher interest rates and the ongoing global credit squeeze.

Nonetheless spending is set to rise over the festive season, with food retailers expected to benefit from a four per cent increase in like-for-like sales over the Christmas period.

Household spending on festive food and drink is anticipated to increase to around £169, pushing up the average cost of Christmas lunch to almost £16 per head - up from £14 per person last year.

Individuals are also expected to spend 12 per cent more on Christmas gifts this year – with today's report predicting an average of £435 will be spent on presents.

Commenting on the anticipated spending levels, BRC director general Kevin Hawkins said: "The retail sector has experienced challenging trading conditions this year and, with even tougher times ahead, these figures will be encouraging for many retailers.

"However, with the recent slump in consumer confidence and falling spending power, growth this year is likely to be driven by discounting. If retailers do see a boom this Christmas, it will be followed by a slump in spending, as consumers really start to feel the pinch and tighten their belts," he added.

Meanwhile a separate report published today warned consumers were becoming increasingly wary of inflation.

A survey of 2,000 shoppers by Lloyds TSB Corporate Markets found 73 per cent thought prices had risen in the past 12 months.