Despite a sector rally, analysts remained resolutely downbeat about retail’s prospects as recession loomed and the pound plunged to a record low against the euro.

Citi saw no prospect of near-term improvements in retail performance and warned there is no likelihood of earnings recovery even in 2010.

The broker said: “Given that UK sector like-for-like sales trends have been cumulatively flat over the last five years, ahead of the credit crunch, and more specifically with the ongoing pressure on the consumer to rebuild the savings ratio, we argue that non-food retail sales growth trends beyond 2009 should be below those over the last five years.” Citi only had three buy recommendations – Halfords, HMV and WHSmith.

Kaupthing was worried by the implications of sterling’s weakness against key sourcing currencies the dollar and euro. The broker warned: “In broad terms, a 10 per cent hike in the cost of goods for those exposed to dollar-denominated sourcing could ripple through to a 3 percentage point margin hit in the absence of re-sourcing or re-pricing.” The broker’s preferred stocks were Asos, HMV and Mothercare.

JP Morgan feared that consensus earnings per share forecasts for UK fashion retailers are between 10 and 15 per cent too high and said: “Our least preferred stock is M&S, for which we expect further earnings downgrades in the next quarter.”

Electricals group DSGi was one of the week’s biggest risers ahead of Wednesday’s update, but then shocked with worse than expected numbers. Sell, urged Dresdner Kleinwort, noting: “DSGi’s first quarter sales were horrible and so was gross margin delivery. The lack of news on disposals confirms a lack of trade buyers for central Europe and Spain.” Numis, advising reduce, warned: “We continue to be bearish on the prospects for electricals retailers as they face an increasingly competitive market and ongoing pressures on top line and margins.” DSGi chairman Sir John Collins will retire next year.

Seymour Pierce retained its hold stance on house stock Liberty, despite the department store business’s growing debt and brand development costs. “The stock has significant upside if management can fully leverage the brand,” argued the broker.

AIM-listed ethical fashion e-tailer Adili is issuing more shares to raise investment cash for its own-brand range. The e-tailer reported that volumes and sales in the first three months of its financial year increased more than 100 per cent.

Next week brings high-profile updates and results. Among those reporting are Next, Morrisons, Home Retail and Primark-owner Associated British Foods.

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