Will this Christmas be boom or bust for UK's high street retailers?

Most retailers are optimistic about the festive season after last year's bonanza but threats to consumer confidence remain

It may only be mid-November but Christmas is already well-underway as far as UK retailers are concerned. Marks & Spencer started its "Magic & Sparkle" television adverts at the weekend, while the festive season decorations are already going up in many stores. There may be six weeks of shopping still to go but given the final two months of the year typically account for up to two-thirds of a retailer's annual profits, that means just six Saturdays to secure financial success.

Will this Christmas be a boom year or a bust year? Most retailers are positive. They cite low interest rates, low unemployment and a "feel good" factor engendered by a buoyant housing market as a solid underpinning of the market. But they also say they are not expecting a bonanza like last year. Other potentially negative factors include fear of job losses, particularly in London and the South-east, and government warnings of the risk of terrorist attacks in the run-up to Christmas.

John Butler, an economist at HSBC, catches the mood when he says: "We're pretty optimistic. The UK consumer may be storing up problems further out in the form of credit card debt and other forms of borrowing. But that won't have an impact until later next year. Confidence is high, unemployment is at generational lows and rates are at their lowest for 40 years. Over the next few months we think retail sales will surprise on the upside."

Nick Bubb, retail analyst at SG Securities, agrees saying: "It is difficult to see why things should be bad though some retailers are up against tough comparisons with last year. But so far things look to be on track and we are pretty relaxed."

Alan Giles, the chief executive of HMV Group, the music retailer which also owns the Waterstone's book stores, makes an important contrast with last year. He says: "I think it is quite difficult to call. I certainly don't think there's going to be the glorious Christmas the British high street enjoyed last year. Then there were good economic conditions and perhaps some psychological effects after 11 September. We saw double-digit sales growth last year and we would not expect to see that this year.

Mr Giles added that regional disparities were also beginning to appear. "There is growing evidence that London and the South-east are not as strong as the rest of the country. I don't know whether that is transport problems, lack of City bonuses or City job cuts. But within the M25 things are not as buoyant."

Simon Burke, the chairman of the toy retailer Hamleys, is also cautiously optimistic. "Solid is the word I would use for our Christmas expectations. We all had a good Christmas last year, somewhat unexpectedly. To expect another bonanza would be misguided. Consumers have held up well and I don't think they pay much attention to reports of weakness in the US economy. What might have an impact is the carry-on about pensions and the stock market. That has rattled some people and pushed them to spend a little less and save a little more."

Mr Burke also added a note of caution about the threat of terrorism. "It's not helpful that we have that threat hanging over us," he said.

In some ways this Christmas should see a repeat of some of the product trends which drove last Christmas to heady heights. DVDs should again sell well as prices have come down and there are new boxed sets available of films such as the Back to the Future Trilogy and all four series of Cold Feet. "People are using DVDs to build libraries of films in a way they never did with VHS as they took up too much space," says HMV's Mr Giles.

In music there is a strong release schedule of greatest hits packages from U2, the Manic Street Preachers and Elvis Presley. But Robbie Williams' Escapology album should be a chart-topper, rivalled by new releases from David Gray, Craig David and Will Young.

Computer games ought to be strong as the Microsoft X-Box, Nintendo GameCube and Sony PlayStation 2 battle it out for dominance of the market. Games software should ride on the back of the hardware launch with several companies bundling two or three games together.

In mobile phones, picture camera phones and colour screen handsets are expected to sell well as are polyphonic ring tones which deliver special sound effects on standard tunes.

Other gadgets on sale include the Remington Pop Girl Hair Tattoo Kit which enables wannabe rock chicks to put transfer tattoos on their hair (£24.99) and the Siemens Porsche Liquidiser for those who think a Moulinex is too common (£129.99).

In fashion black is the new black for men and women while suede, fake fur and leather are the top fabrics as well as cord, which is the hot new thing. "Suedette" jackets are expected to do well for women while the Parka jacket is back from the dustbin of fashion history complete with fur-lined, tunnel hoods.

Philip Green, the owner of Bhs and Arcadia declined to comment on fashion trends saying all he wanted for Christmas was some colder weather. " It's too wet and too warm," he complained. "We need a bit of settled colder weather. But apart from that, everything feels OK."

Marks & Spencer declined to say anything at all about Christmas. However, last week Luc Vandevelde, the group's chairman, said he expected sales growth to return to more normal levels of 3 to 5 per cent.

In toys Hamleys says top sellers should include Beyblades, which are like modern-day spinning tops as well as the inevitable Harry Potter Chamber of Secrets set from Lego. Those with deeper pockets could try the radio-controlled Vectron, a flying saucer priced at £119.99. Brave parents might also stump up for the E-Kara karaoke machine at £49.99. The machine enables players to record themselves on video and play the results on the television. "I think traditional toys might have a relatively hard time because there is so much competition out there," said Richard Hyman of Verdict, the retail constancy.

But as more and more people have more and more "things", services and food are becoming increasing popular gifts. WH Smith and Boots are selling gift sets that buy the recipient a day of rally car racing or rafting. Meanwhile food sets such as oils, pastas, chocolates and food hampers are all expected to be popular.

As far as individual retailers are concerned this Christmas will be a key season for many of the major players. Marks & Spencer needs to prove that last year was not a one-hit wonder and that it can drive sales against stronger comparison. Boots' chief executive Steve Russell needs to show that the core Boots the Chemist chain can succeed as the group's WellBeing services operation is de-emphasised. Perhaps the biggest focus will be on Woolworths, which has had more poor festive seasons than bountiful ones. Another slip this year and a bidder could pounce.

What could go wrong for the high street as a whole. The nightmare scenario would be terrorist activity such as a bomb in the run-up to Christmas. But even the threat of action would damage confidence and keep people away from the shops. A further lurch downwards in stock markets or a sharp rise in unemployment would also have a serious impact.

One worry is that certain retailers, such as Marks & Spencer and Boots, have stocked up so much this year in the hope of a bumper season that they face massive mark-downs if sales growth proves to be modest.