Tesco sales hit by plunging food inflation

Supermarket giant Tesco said today that UK sales growth almost ground to a halt in the last three months as the grocer wrestled with plunging food inflation.

The firm said UK like-for-like sales excluding petrol rose 1.1% in the three months to May 30 - but, adjusting for this year's higher rate of VAT sales, crawled just 0.1% higher.

Sales stripping out petrol suffered because customers were paying around 30% more for fuel than a year ago and were shifting spending from other areas, the firm said.

Tesco also blamed comparisons with particularly high food inflation a year earlier and finance director Laurie McIlwee said the slump in sales growth was "fairly unique".

But the UK number one still expects UK like-for-like sales growth of around 3% for the full year as the group trades through the tough comparisons.

It also saw some signs of recovery despite some consumer concerns over the impact of next week's emergency Budget.

"Although customers in the UK continue to face some uncertainties about their personal finances going forward, we continue to see evidence of a steady consumer recovery," the firm said.

Chancellor George Osborne is said to be weighing up a potential hike in VAT next week to help tackle the deficit, but Mr McIlwee said the coalition had to take care in managing a fragile UK recovery.

He warned: "If there is an increase in VAT on products it should be in the future rather than now."

In the UK, Tesco benefited from its World Cup marketing campaign, with sales of some televisions more than doubling as customers traded up for the football tournament.

The firm's international business has also been helped with four of Tesco's overseas markets - South Korea, Slovakia, Japan and the USA - sending teams to the World Cup.

Tesco announced last week that its chief executive, Sir Terry Leahy, would quit next March after 14 years in charge at the retailer.

Sir Terry has led its overseas expansion although the firm added that international like-for-like sales growth had been "broadly flat" compared with the previous quarter, as political unrest in South Korea and Thailand unsettled trading.