LONDON (Reuters) – British retailers are gearing up for bumper Christmas sales, with the country's biggest supermarket group Tesco Plc predicting its best ever festive season.

The cheery note follows recent upbeat outlooks from retailers including Britain's biggest department store group John Lewis and discount store Poundland.

"We're backing Christmas. We believe it will be our biggest Christmas yet," Tesco's commercial and marketing director Richard Brasher said yesterday at a store in north London.

Tesco is setting aside five percent more selling space for seasonal products ranging from artificial trees to a Virgin Mary children's costume at its 220 Extra stores, which account for about 50 percent of its UK revenue.

British retail sales growth picked up in November, and a survey by the Confederation of British Industry (CBI) showed retailers expect demand to hold firm in the crucial Christmas shopping season.

Europe's No.2 electricals retailer Dixons Retail hopes demand for iPads, motion-sensitive gaming systems and 3D TVs will offset the impact of government cost-cutting measures.

"It is clear to us that new technology sales will be strong (at Christmas)," Chief Executive John Browett said, after the company posted an expected narrowing of first-half losses and said its recovery strategy was on track.

"However, the key question is how much of that substitutes for other expenditure in this kind of environment? We are not expecting an easy Christmas, we think it is going to be very competitive," he said.

Many of Europe's retailers are still struggling with consumers' reluctance to spend on big ticket items as governments cut spending and raise taxes to reduce huge deficits.

The CBI's distributive trades survey said the balance of retailers reporting an increase in business rose to +43 in November from +36 in October. That was just short of September's six-year high of +49 and 10 points above the consensus forecast.

And John Lewis reported sales were up over 12 percent in the first half of the current trading week.

"On the face of it, the CBI survey and the John Lewis figures suggest that the key Christmas period is shaping up pretty well for retailers," said Howard Archer, an economist at IHS Global Insight.

Retailers were confident the improvement would continue, with an expected balance for December of +45. However, a rise in VAT sales tax at the start of 2011 might rain on the parade.

"Looking into the New Year, retail sales growth may lose some of its sparkle, as consumers rein in spending after Christmas," said Ian McCafferty, CBI chief economic adviser.

"Confidence remains fragile, VAT is rising in January, and a combination of weak wage growth and high inflation is eating into household incomes."

A quarterly survey of retailers showed stores were slightly less upbeat about the future than they were in August, with the business situation balance easing to +11 from +22.

Tesco's big push in festive products — from perfumes and pyjama gift sets to computer games, toys and tablet computers — could turn up the heat on high-street chains such as Home Retail's Argos, Alliance Boots and HMV.