Tesco posted its slowest quarterly sales growth in at least two years, stalled by slower consumer spending and increased competition from Asda and the rejuvenated Sainsbury.

Britain’s biggest retailer said sales excluding petrol at established UK stores rose 5.5 percent from a year earlier in its fiscal third quarter, slowing from the 7.5 per cent growth seen in the previous quarter. The City had expected Tesco to report growth of about 6 per cent on the same measure.

Overall, Tesco's third-quarter sales rose 13.9 per cent in the 14 weeks to November 19, with sales of non-food items continuing to see double-digit growth. Fuel sales also helped boost the total.

Tesco, whose tills take one pound in every five spent on food in the UK, had said in September that oil prices were a "concern" and spending in its British stores was down from a year earlier. The company provided no forward guidance today.

"Petrol is largely profitless and, in-store, things are slowing," said analysts at US bank Merrill Lynch in a research note. "It’s the UK that matters most and here it seems to be panning out as Tesco foretold it would in September. Used to Tesco outperforming their, never mind its own expectations, analysts may now feel disappointed at this."

The sales improvement came despite declining UK consumer spending, as higher petrol and heating bills eat into household budgets. The Confederation of British Industry said earlier this month that sales fell for an eighth month in October.

Turnover at the group's core British business in the 14 weeks to November 19 increased 11.6 per cent, the company said. Same-store UK sales rose 7.9 per cent and international sales jumped 23.3 per cent at actual exchange rates during the quarter.

"We are on track to open almost 150 stores with a total of nearly 3.5 million square feet of sales area in International during the second half this year, representing our largest ever opening programme overseas," said the group.

Tesco's next trading update will be on 17 January next year and will cover the Christmas and New Year period.

Shares of Tesco fell 4p or 1.3 per cent to 308.75p on the London Stock Exchange, making them the worst performer in a rising FTSE 100 index.

For detailed information on Tesco, click here.

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