Tesco today revealed slowing sales in the UK during the third quarter but said that it had kept down the rate of food inflation. It also announced strong overseas trading.

The group reported overall sales up 11.8 per cent for the 13 weeks to November 24, compared with 10.3 per cent growth in the same period last year.

In the UK, while like-for-like sales excluding petrol rose by 4.1 per cent, it was at a slower rate than the third quarter of 2006, when sales increased by 5.6 per cent.

During the second quarter, like-for-like UK sales grew by just 2.4 per cent because of the unseasonable weather. However, this recovered to 5 per cent towards the end of August. Despite strong international growth, the UK remains Tesco's most important market, where it generates three quarters of annual sales and profits.

Tesco said that the rate of food inflation had been maintained at 0.8 per cent since last year. In the summer, Tesco reduced prices, mainly in food, by £270 million across its stores.

A spokesman at Tesco dismissed concerns over rising food prices as "hype" and said food inflation at the supermarket group had fallen in the third quarter compared with the same period last year, despite the rate being reported as 0.8 per cent during both periods.

In the third quarter last year, Tesco said that inflation reached 0.8 per cent owing to "higher energy costs and increases in market prices for produce and meat".

In today's statement, it said third-quarter inflation was maintained at a "similar" level to the first half, when it reached 0.9 per cent, despite "higher market prices for commodities and seasonal fresh foods".

The British Retail Consortium today reported that sales growth during November had improved since an 11-month low in October but was significantly below September.

Annual sales grew by 3.1 per cent in November, up on last month's 3 per cent rise but down from a 4.9 per cent year-on-year rise in September. Like-for-like growth in the year to November reached 1.2 per cent, against 1 per cent in October and 3 per cent in September.

Tesco's spokesman declined to comment on trading as the company enters the Christmas period but said that TVs and electrical goods were selling well.

But Andrew Higginson, finance director at Tesco, told Thomson Financial News: “You're seeing a very cautious customer. People are being very careful about how they spend money, where they spend money and they’re really looking for good value.

“If you don’t provide good value you get punished, but if you do the good news is that people are prepared to spend.”

Last night Sir Philip Green, owner of Bhs and Top Shop, told Sky News that the high street was facing a tough Christmas while next year will be challenging.

Sir Philip said consumers were spending in a "very discerning way". He said: "They're buying the product they like, they're buying quality, they're not just buying on price."

Tesco's international revenue rose by 25.7 per cent during the quarter, bolstered by Asia, where sales increased by 29 per cent. The company is continuing to build its overseas business, with plans to increase its overseas selling space by seven million square feet.

In the last three weeks, Tesco opened its first US stores, Fresh & Easy, and has a strong expansion programme for its American presence.

Commenting on third quarter trading, Sir Terry Leahy, chief executive, said: "We've maintained pleasing progress during the third quarter across the group.

"Overall sales growth has strengthened in the period, with international delivering a particularly strong performance, and the UK has again done well, with good growth in our core food categories."

Shares in Tesco firmed 2½p to 490p.

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