J Sainsbury today demonstrated its credentials to be darling of the high street when it defied expectations to report like for like sales growth of 3.7 per cent in the run-up to Christmas.

In stark contrast to Marks & Spencer's flat pre-Christmas sales, the UK's third biggest grocer said that it had now achieved 12 consecutive quarters of like-for-like sales growth. Sainsbury's better than expected results bouyed the whole retail sector, which was routed yesterday in the wake of M&S's gloomy statement.

Justin King, the chief executive of the retailer, said that there was no doubt that the consumer budget was stretched and said that competition to grab the customer's "tightly held penny" had never been tougher.

However, he resisted the call for an immediate cut in interest rates saying that reports of food price inflation had been overplayed and that Sainsbury's customers were seeing inflation of only about 1 per cent, given the many price promotions that were taking place in stores. Sainsbury's refusal to paint a picture of doom and gloom strengthened the case for the Bank of England to hold interest rates later this morning.

"We are seeing consumer belt tightening. However the same consumer that is buying basics products is also prepared to buy a premium product for the Christmas table or when they want a treat," Mr King said.

"The fact that we have a broader offer and more universal appeal is perhaps reflected in our performance," he said, commenting on the difference between his own company's pre-Christmas trading and that of Marks and Spencer, which yesterday reported that food sales had fallen for the first time since 2005 by 1.5 per cent.

Sainsbury's shares jumped 30p to 395p in opening deals this morning, equal to an 8.2 per cent rise.

The Sainsbury's trading update for the 12 weeks to 29 December, which was in line with market expectations, appeared to confirm City forecasts that foodstores had weathered the gathering high street gloom best. Last week, Waitrose showed a strong pre-Christmas performance and Morrisons is expected to report decent figures next week.

Sainsbury's, which like M&S has also been on a demanding recovery programme in the last three years, said that it had reached its goal of achieving £2.5 billion additional sales since March 2005 three months earlier than planned.

Looking forward, Mr King said that he expected competition to remain very tough in 2008 and said that he and his managers would be "sharpening their pencils". However he declined to comment on M&S's prediction that the gloom would tip over into 2009 and ruled out any changes to a store opening and refurbishment programme that was unveiled in May last year.

"The improvements we have made to our business during our recovery means we are well equipped to perform in this challenging environment and we remain confident in our ability to deliver our growth plans," he said.

Total sales were up 4.7 per cent excluding petrol and 5.9 per cent including petrol. Sainsbury said over 21.5 million customers shopped at its stores in the seven days before Christmas supported by its highest level of product availability this year.

It served more than 300,000 customers per hour on December 23, the busiest trading day of the week. Sainsbury’s Online delivered sales growth of over 40 pct in the quarter.

Significant sales growth in non-food items — homeware, toys, electrical, entertainment and clothing — also helped Sainsbury to achieve market expectations. The group said that the strongest growth in its food sub-brands was polarised between its basics value entry rante and its Taste the Difference premium range.

The trend for Christmas food shopping to take place later and later also continued, with Sainsbury's serving 300,000 people an hour on December 23, Sainsbury's busiest trading day in Christmas week.

During the quarter, Sainsbury's opened twelve new supermarkets, extended five existing stores and refurbished another seventeen. It also added eight new convenience stores.

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