Lower food prices hit Tesco UK growth

Image caption,
Tesco's rise in sales is being led by its stores in the US

Tesco said UK sales growth was almost flat in the last three months, as it battled with falling food prices.

Like-for-like sales, which pull out new store openings, rose 1.1% in the three months to 30 May, excluding petrol.

But when the return of VAT to 17.5% after its temporary cut was factored in, growth was just 0.1%.

The firm said higher fuel prices - up about 30% from a year ago - meant shoppers had less to spend on other things.

The trading update comes a week after Tesco's chief executive Sir Terry Leahy announced that he will be retiring in March of next year.

Impending government austerity measures would make life even more difficult for Tesco customers said Richard Hunter of stockbroker Hargreaves Lansdown.

"Tesco is struggling to make the kind of headway to which the market has become accustomed," he said, adding that Sir Terry's looming retirement "added further uncertainty whilst Tesco's rivals continue to make their presence felt and threaten slowly to erode its dominant position".

'Good shape'

Outside the UK, Tesco said the long-term global economic recovery was "well underway" after it reported a 6.9% rise in total group-wide sales, excluding petrol.

The supermarket group's sales across Asia advanced 15.4%, while they added 7.3% in mainland Europe.

Lifted by new store openings, its sales growth for the three months to 30 May was strongest in the US, where it expanded by 37.8%.

"We're in good shape and well-positioned to deliver further growth as the economic environment continues to improve," said Sir Terry.

Tesco said its evidence of increased UK consumer spending came from a rise in sales of its more expensive "Finest" range of products.

In addition, it said sales of televisions were up "strongly as a result of our successful World Cup marketing campaign".

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