Tesco growth hits seven-year high as it battles price rises

Tesco posted its strongest quarterly sales in seven years as it said it battled rising inflation to keep prices down for customers.

The UK's biggest supermarket chain reported like-for-like sales - which strip out the impact of new stores - rose by 2.3% in the three months to 27 May, boosted by demand for fresh food.

Analysts had expected a rise of 2.2% after Tesco reported an increase of 0.7% in the fourth quarter.

The retailer said fresh food volumes grew by 1.6% in the period, which saw prices cuts on fresh food and healthy options.

It said it was attracting shoppers, with 10m more customer transactions than in the same period a year ago.

Tesco and its major rivals – Sainsbury's, Asda and Morrisons – have been battling to hold market share against growing discount rivals led by Aldi and Lidl.

Chief executive Dave Lewis said: "In tough market conditions, we have stayed true to our commitment to helping customers - working closely with our supplier partners to keep prices low.

"Customers have responded by doing more of their shopping with us and as a result we continue to grow volumes, particularly in fresh food."

Booker deal

Lewis also batted off reports of unrest - ahead of Tesco's annual general meeting later - over a £142,000 sum paid by the company in stamp duty and legal fees for him to move closer to the company's Hertfordshire headquarters.

He said help with these relocation fees was the same as would be offered to any other store manager.

In January, the supermarket group agreed to buy wholesaler Booker for £3.7bn.

Hargreaves Lansdown senior analyst Laith Khalaf said: "Recovery is continuing at Tesco, despite the squeeze on consumer incomes from weak wage growth and rising inflation.

"The going is still tough though, as the sector is highly competitive and a rising pound will put pressure on supermarket margins, so it remains to be seen just how much those higher sales will feed through into profits."