Ever-spiraling interest rates and inflation have lent no Christmas cheer this season to Washington-area merchants and consumers, whose only sure gift, it seems, is more bad economic news.

Businesses from the National Theatre to Woodward & Lothrop have postponed expansions, and other merchants are cutting back on inventories because they cannot afford to buy and keep goods on their shelves. Contractors are canceling or postponing building projects because they can't afford to borrow money.

Consumers are using less credit and more cash and scrutinizing purchases more carefully. Businesses which counted on Christmas sales to supplement as much as half of their business during the year say they are suffering and expect dollar sales to be no better than last year's. This indicates a decline in real merchandise volume because of inflation exceeding 10 percent over the last 12 months.

In recent weeks, several Washington-area firms, such as NOVA Real Estate Investment Trust in Northern Virginia and Plus Publications, a major newsletter publisher, have filed for bankruptcy. Personal bankruptcies in the District have more than doubled since last year. Millions of dollars in new commercial construction projects are waiting on the ground floor and businesses contemplating moves to commercially-popular Fairfax County are stopped when it's time to finance their projects, officials said yesterday.

On Monday, major banks here and across the country added to the Christmas blues by lifting their prime lending rate -- the interesst rate charged to their best corporate customers -- from 20 percent to 21 percent with no sign that those rates have peaked. One banker yesterday forecast a 25 percent prime rate in the near future.

"Twenty-one percent knocks the hell out of your borrowing power," said Maurice Tobin, chairman of the board of the National Theatre. "Theaters at best are marginal operations."

The theater already had secured financing to expand its washroom facilities.

"Our crowds are so great we don't have the room to handle them all. "But theater-goers won't get more room in the lobbies." Plans to triple the size of its lobbies, originally planned for construction Dec. 1, will be postponed at least until next June or July if the theater can afford to borrow the necessary funds then, Tobin said.

In addition, producers may have a hard time getting financial backers for shows, because investors would rather invest in businesses with less risks, Tobin added.

Some local retailers said record prime rates, which don't directly affect consumers, have had a psychological effect on them.

"The biggest thing we're seeing right now is the attitude of the consumer," said William D. McDonald Jr., vice president for marketing at Woodward & Lothrop. Christmas sales, which comprise about 30 percent of Woodies' annual business, may equal sales of last season. "But given inflation, that is not an optimistic forecast," McDonald said.

Small businesses, which generally fare worse in bad economic times than larger firms with more resources, are continuing that trend, local analysts said. For example, Toast & Strawberries, a D.C. women's apparel shop, generally adds to its loans annually to pay for new purchases. But not this year, said owner Rosemary Miller.

The last loan had a 12 percent interest rate and with rates more than 20 percent now, "we just couldn't handle it," Miller said yesterday. She said she will cut down on inventories. For example, instead of buying $600 of enamel jewelry from San Francisco, she may purchase only $300 or $400 worth, she said. As for the loan, she said she'll have to try to make it without it. s

"Sure, right now we're all right," Miller said. "We'll coast along for only three months and after that we'll have to scramble . . . reexplore getting a loan and maybe [interest rates] will be 25 percent."

Dozens of commercial office projects in downtown Washington and the suburbs will be postponed until borrowing rates are more favorable, construction analysts said. Construction loans, tied to the prime rate, now range from 23 percent to 25 percent. Because of high financing rates, costs of leasing new office space are expected to soar in the future.

High mortgage interest rates are making renting look more appealing. "You can rent a house for $500 or $600 but you'd have to pay out something like $1,000 a month if you were buying the same house," one analyst said.

Among discouraging news reports yesterday, the Federal Home Loan Mortgage Corp. said the average yield of mortgages accepted under a weekly purchase program rose to 14.863 percent from 14.697 percent last week. This rate is closely watched for trends and indicates that virtually no mortgage loans will be available to consumers at less than 15 percent.

The U.S. League of Savings Associations also reported yesterday that mortgage lending activity and savings deposits both dropped sharply last month, a trend duplicated in the Washington area which points to less money available for mortgages.

But, there may be some consolation in the belief that Washington, formerly the recession-proof city, isn't faring as badly as more industrial cities with lower average income levels.

"Washington possibly will suffer less than most cities similar to Washington, D.C.," said Samuel L. Foggie, president of United National Bank. But he added, "I think you almost have to be a magician to change this overnight."