Christmas 2010 is set to be the best Christmas for retailers since 2007, according to a new study from Verdict Research.
Despite the looming threat of spending cuts and job losses, consumers are expected to spend an extra £1.6bn this year, compared with Christmas 2009.

This will boost sales 1.9% to £85.2bn, the highest increase since Q4 2007.

Clothing, food and grocery and health and beauty are set to produce the largest sales increases, while home-related sectors will have "varied fortunes", said the report. DIY, furniture and floorcoverings will continue to be hit by a lack of movement in the housing market, while seasonal products and gardening items will be the main areas to push sales for DIY and gardening retailers. Eye-catching homewares ranges should provide an opportunity for gifting and entertainment, said Verdict.

However, analysts say it is the online channel that is set to benefit the most, accounting for more than three quarters of the extra spending with growth of £1.2bn on last year.

Verdict's lead retail analyst Maureen Hinton said: "Though online is such a major factor in sustaining growth, the fact so many more retailers are now online means that even this channel is becoming more crowded and competitive. Those retailers we trust, such as John Lewis, M&S and Next, that provide a range of multi channel options for buying, delivery and exchange, are the winners at Christmas."

She added: "However, this switch to online does mean those retailers without transactional websites are missing out at a crucial period for the sector."

It is important to note that these sales figures include VAT, which has increased from 15% to 17.5% since last year.