Tesco bucks slowdownas Christmas starts early

Tesco defied the consumer slowdown yesterday with an upbeat trading update, but nevertheless urged the Bank of England to cut interest rates "sooner rather than later".

Its finance director Andrew Higginson said the risks associated with inflation had been overstated. He argued that consumers were cautious about spending due to higher interest rates, while inflation in its stores was running at just 0.8 per cent.

But he added that Tesco had seen a good start to Christmas, with food, gifts and flat-screen televisions selling well. "Consumers are being careful, but where they see value, they're prepared to spend," he said. The comments came as the supermarket reported that total UK sales were up 7.6 per cent in the three months to 24 November, with like-for-like sales 4.1 per cent ahead. Total sales across the group rose 11.8 per cent during the period compared with a 9.8 per cent improvement in the first half.

Richard Hunter, head of UK equities at the stockbroker Hargreaves Lansdown, said: "The reticence of the UK consumer seems to have passed Tesco by. All the key performance indicators continue their inexorable growth. The success of the international division continues apace."

Tesco claimed recent fears over the soaring cost of food had been overstated. While key items such as bread have seen rapid increases, the supermarket said that third-quarter food inflation was in fact lower than in the same period last year. "We have had an upping of commodity prices, so there's been a bit of inflation in the system, but it's been very much overstated," a spokesman said.

This week, Tesco unveiled plans to roll out 1,000 of its new-format Fresh & Easy stores in the US, after the opening of 15 stores in Las Vegas, Los Angeles, San Diego and Phoenix. The supermarket is pursuing a hard-discount model in the US similar to its European rivals Aldi and Lidl and is also hoping to pioneer ready meals.

Tesco's chief executive Terry Leahy said yesterday that the first Fresh & Easy stores "have been very well received by customers".

Meanwhile, workers at Asda are in line for a share of a 12m windfall over the Christmas period. The super-market, owned by the American giant Wal-Mart, said every one of its 160,000 staff will be given a 20 gift card to spend in stores and a 20 per cent discount off their in-store shopping.