Tesco to report sales slowdown

Tesco, Britain's biggest retailer, will report half-year profit figures this week under a cloud of warnings over falling food prices which analysts say will hit profits at food supermarkets over the next year.

The giant supermarkets group is expected to disclose that second-quarter sales to August grew at around 3.4 per cent in stores open at least a year, down from 4.3 per cent in the first quarter. Analysts say a combination of falling food price inflation and more careful shopping by customers is responsible, but pre-tax profit for the period is around £1.5bn – similar to last year.

Tesco shares fell 5p to 388p on Friday after Citigroup's decision to tell its clients to sell all three of the big UK food retailers, including Sainsbury's and Wm Morrison, on the grounds that food prices are falling sharply. Citigroup analyst Alastair Johnston warned that investing in supermarkets was "too risky" because food price deflation will hit sales and margins more than anyone anticipated. In August, food prices fell 1.2 per cent below May's level, and are set to slip even more in September.