Stronger than expected Christmas sales rounded off a strong second half for Next with like-for-like sales in the 22 weeks to Christmas Eve up 3.2%.

The retailer upgraded its full year profit forecast from £490m to £500m.

Next said that consumer confidence was better than expected due to modest falls in unemployment, low inflation and continuing low interest rates. It also said that it has improved its ranges and has continued to back new products and trends.

Sales for its directory business grew 6.8% with total Next brand sales ahead 5.2% for the half.

Next added that it had entered its Sale with 12% less stock than last year and that clearance rates are in line with last year.

It said that it remained cautious for the year ahead with risks including the scale of the public sector deficit posing a threat to recovery. It also highlighted increased taxes and reduction in government spending as possible risks to consumer spending. It said that increases to indirect tax could fuel inflation which may in turn push up interest rates.

Next expects that its retail like-for-like sales will be between 1% and -3% in 2010 but said it was well placed to face the challenges that may arise this year and believes it can deliver similar levels of profit.