Next led a share rally in the retail sector last night as Citigroup said that share prices in the sector had bottomed out and that it was time to “relight the fire”.

Next closed with gains of more than 7 per cent, up 98p, after Citi said that for the first time in two years retail sector earnings have an “upside forecast risk”. Citi analyst xRichard Edwards said that household cash flow and subsequent consumer demand should improve throughout this year and the next.

Edwards said that if the sales trend revealed in recent British Retail Consortium figures continued, like-for-like sales were likely to be flat in the second half for most high street retailers.

Citi said: “In assessing the valuation of Next, the share price debate centres on the trade-off between the likelihood management can deliver earnings recovery going forward following four years of sharp like-for-like sales declines, and the group’s modest forward valuation multiples.

“In the wake of our macroeconomic analysis, illustrating the likely improvement in real UK household cash flow in 2010, we argue that the Next earnings forecast agenda is more credible, despite currency-driven input cost pressures”.

Edwards raised his ratings on Next, Signet and Sports Direct to ‘buy’.

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