Morrisons counts cost of Tesco fightback and dearer petrol

Morrisons has suffered its first fall in underlying sales for nearly seven years, which the grocer blamed on a blitz of discounting coupons from rivals and the impact of higher petrol prices on households.

Dalton Philips, the chief executive, said there had been a further slide in consumer spending, although London and the South-east remained the "fastest-growing" region for the UK's fourth biggest grocer.

The Bradford-based supermarket posted a 1 per cent fall in like-for-like sales, excluding fuel, over the 13 weeks to 29 April. This was its first decline in underlying revenues since the autumn of 2005, following its acquisition of Safeway in 2004.

Mr Philips said the grocery market was "extremely competitive" but that Morrisons would focus on "growing at a measured rate" and would not get drawn into "irrational" discounting, which could hurt its profit margins.

Mr Philips said "our largest competitor" – Tesco – had issued promotional vouchers for eight of the last 13 weeks. While Tesco's underlying sales also fell 1.6 per cent in its most recent fourth quarter, the weak performance of Morrisons suggests the market leader's aggressive promotional activity and the launch of its £1bn investment in its UK stores is starting to hurt its smaller rival.

Mr Philips believes there has been a further step down in consumer spending. He said: "It is even tougher. The average family with two cars is paying £26 more a month on fuel than [this time last year], that eats into the monthly household budget."