Tesco sees UK sales fall by 0.9%

Tesco said it was seeing the impact of rising unemployment on consumer spending

Sales at Tesco's UK stores have fallen in recent weeks, taking the shine off a stronger performance at overseas outlets.

Like-for-like UK sales, excluding fuel and VAT, were down 0.9% in the 13 weeks to 26 November, the company said in a trading update.

The retailer said it was seeing the impact on consumers of rising unemployment and rising living costs.

Total group sales rose 5.4%, excluding fuel, despite trading problems in Asia.

The company, the UK's biggest retailer with about 2,700 UK stores, recently launched a £500m price-cutting campaign.

Despite the sales decline, Tesco insisted the results of its Big Price Drop, which saw the cost of 3,000 everyday products slashed, were "promising" as food volumes rose by a whole percentage point, offsetting the deflationary impact of its price cuts.

The 0.9% fall in UK sales, although broadly in line with what retail analysts had expected, marks the fourth consecutive quarter that sales have declined.

The figure was unchanged from a 0.9% sales fall Tesco had reported in the previous quarter.

Tesco, which trails France's Carrefour and US leader Wal-Mart by annual sales, makes about two-thirds of its sales and three-quarters of its profit in the UK.

Philip Clarke, Tesco's chief executive, said: "We have made good progress in our third quarter against the background of challenging conditions for consumers in many of our markets."

Total UK sales including VAT and petrol grew by 6.7%, while the figure for total group sales was 7.2% higher.

Tesco's shares, which have lost about 6% of their value since the summer, were down 1.4% in early morning trading.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, described the trading figures as "lacklustre" and said they "mirror the wider inertia in the sector".

But he added: "More positively, the company has implied a stronger start to its Christmas campaign in the UK, whilst both the central European and US businesses continue to show signs of improvement."