Retail sales volumes in December were at their strongest level in more than two years.

The CBI's distributive trades survey showed the most positive figure for shop sales since April 1997.

More than 60% of shops said that sales volumes were higher than last year, with only 19% saying there was a fall - a positive balance of 41%. That compared to last December's positive balance of only 4%.

But the CBI warned that expectations for January were subdued.

Alastair Eperon, chairman of the CBI's distributive trades survey panel, said: "December's rise in retail sales is most welcome as it follows two months of less robust growth when expectations were not met.

"This is not the time to make any hasty interest rate changes," he added.

The Bank of England meets next week to set interest rates, with fears growing that they will want to take action to slow the UK economy, which is set to grow by 3% in 2000.

Mixed fortunes for retailers

But despite the overall optimism, many individual retailers are reporting mixed fortunes over the holiday period.

While sales of jewellery and electronic goods like mobile phones have soared, clothing retailers are having a difficult time.

Most analysts expect more bad news for companies like Marks & Spencer and Bhs when they report on their Christmas sales next week.

One exception has been Next, which said that sales were up 17% in the last quarter of 1999.

And although sales volumes are up, prices continue to be weak, hurting the profits of retailers, as canny shoppers wait for sales.

Long-term gloom

The long-term outlook for the retail sector is pessimistic, according to a new survey by the retail consultants Verdict.

They predict that conditions will get much tougher for UK retailers as the population ages, and internet shopping grows.

Retailers will also face increased competition from discount stores like Wal-Mart, which recently bought the UK's Asda supermarket chain.

Verdict predicts that conditions will be toughest for companies selling food and clothing, with DIY, electricals, and music and video shops growing faster than average.

The report was quoted by market analysts as being one of the factors depressing London's FTSE 100 share index on Thursday.