This Christmas may be the second that shoppers have faced during this recession but research from Mintel suggests retail sales are still growing in both volume and value terms.

Mintel is forecasting growth of 2% versus last year in retail sales this month, driven by a recovery in consumer confidence in addition to continuing low interest rates and a mini boom in sales before VAT is due to go back up in January.

Mintel adds that even though consumers will continue to be a little more cautious this Christmas, the number who are planning to spend ’a lot less’ on gifts has fallen 3% year-on-year.

In addition, 20% of consumers claim that although money is generally tighter, they will still splash out for Christmas 2009 a figure unchanged from 2008.

Richard Perks, director of retail at Mintel, says: "Consumer confidence has been steadily improving in recent months and the proportion of people feeling relaxed about their financial situation has been increasing, even though they know there are problems ahead.

"There is no doubt that consumer demand has held up far better than anyone expected a year ago, and that is entirely down to the cuts in interest rates.

"Knowing that there are tough times to come, consumers will decide to have a ’good Christmas’ while they can still afford it."

But Mintel warns that it’s not all good news for retailers because the VAT change due in the New Year (when the rate returns to 17.5%) is set to impact on consumer spending behaviour.

While the research company forecasts a rush of buying in the week after Christmas to beat the VAT hike, with retailers capitalising on this situation by bringing sales forward, prospects for 2010 and 2011 are poor with incomes being squeezed by higher interest rates and taxes.

And despite spending being predicted to increase, it seems that the economic climate has made its mark on consumer attitudes to spending.

One in three shoppers (34%) say they have a budget for spending which they stick to a figure which is up 2% from 2008.