Tesco yesterday reported its best quarterly sales growth in the UK for two years - but insisted it was too soon to call a recovery.

The UK’s biggest retailer said that, in the 13 weeks to May 30, UK sales grew by 4.3 per cent on a like-for-like basis. This compared with sales growth of 3.7 per cent in the previous quarter.

The figures were slightly better than many in the market had expected and Tesco shares rose 5.5p to 361.6p. Group sales during the period were up 12.6 per cent, excluding petrol, thanks partly to a 20.1 per cent rise in international sales.

Laurie McIlwee, Tesco’s finance director, said it was a “good, solid start to the year”.

He told The Times: “To grow at 12.6 per cent, there aren’t many companies growing at that rate. It puts us on a great trajectory. Asia has done very well.”

Mr McIlwee said the UK sales performance, for which Tesco has been criticised by analysts in recent months, was particularly pleasing.

He added: “We have been true to our word and invested right the way through the recession. Companies like Tesco can come through a recession stronger. What I like is that we have shown we can sustain this kind of growth and that we are delivering good profits growth behind that.”

He signalled that Tesco’s non-food sales, where growth stagnated in the second half of 2008, were now growing again: “Electricals have been doing well for us, as has clothing. We were winning market share in those categories even when we weren’t growing sales, so we are putting on quite a bit of market share there now.”

Mr McIlwee denied that Tesco had enjoyed any meaningful boost to UK sales due to recent good weather, but insisted it had enjoyed a good Easter, partly due to the decline of Woolworths - previously the UK’s biggest seller of Easter eggs.

He added: “We sold a lot of Easter eggs because Woolworths had disappeared and we sold out a couple of days early.

Mr McIlwee also disputed claims that Tesco has been losing market share to competitors as measured by recent ‘till roll’ data.

He went on: “It’s been a bit misquoted — on the till rolls, we are not losing share, although the other three are growing faster than us, which obviously I am not comfortable with. But I’d rather grow at this rate than chase sales unprofitably.”

He said Tesco’s controversial new discounter range, launched last September, had also been successful: “Despite others trying to teach us about how to launch ranges, it has been fantastic for us. We have absolutely stopped any loss of sales to those players [Aldi and Lidl]. We have achieved 30 per cent market penetration which is fantastic given when the range was launched.

“Any customer has at least two products from the range in their basket. It has been a drawback on sales, because of the deflation in there, but we lap that in September.”

However, Mr McIlwee declined to describe Tesco as being in “recovery” mode.

He said: “It is very fluid. The fact that we are seeing an uplift in non-food and the Finest range is encouraging and means we can be cautiously optimistic - but it is going to take a while for our economy in the UK to come out of recession.

“In terms of feel, we are not in an environment or economy that’s starting to boom again. We are on the bottom part of the ‘U’ - but there are no real signs of a dramatic recovery.

“Our budget is set for low growth, both in sales and profits, 3-4 per cent is typically where we would budget for - and we are outperforming that.”

Mr McIlwee said the relaunch three weeks ago of Tesco’s Clubcard loyalty scheme, which has 17 million customers, was showing early signs of proving successful. He said one million customers had already taken advantage of an offer to ‘double up’ their points while more customers were signing up to the scheme.

He added: “The increase in loyalty comes from those two things. I would rather do that to build sales than discount aggressively, which as we have seen, can end in tears, a la Safeway.”

Mr McIlwee said he was broadly satisfied with trading in Europe where, despite where, a recession in some key markets, sales rose by 1.9 per cent.

He added: “Europe has been in recession for a long period of time. For us, Slovakia is struggling because of its entry into the euro, there’s a lot of cross-border shopping going on, only some of which we are getting.

“In the Republic of Ireland, we have had to take some tough medicine, and we have dropped prices by 20 per cent.”

Mr McIlwee said that, because Tesco buys in sterling, it was able to offset weak trading in Ireland to an extent, but admitted this had created some “PR issues”. Tesco’s chief executive, Sir Terry Leahy, was recently confronted by Irish potato growers angry that it has been selling British-grown spuds south of the border.

Sam Hart, analyst at broker Charles Stanley, said: “Encouragingly, there are some signs of improvement in the consumer environment in a number of markets, but Tesco’s UK like-for-like sales growth is expected to continue to lag peers in the near term.

“Repositioning of the offer towards value has been more aggressive than peers and is having a deflationary impact on sales. Higher exposure to non-food will continue to create a drag. Sainsbury and Morrison are also likely to remain in ‘recovery mode’ for a while to come, having raised their games significantly after years of underperformance.”

Sainsbury’s is today expected to report a 7.3 per cent rise in like-for-like sales for the 12 weeks to June 13. Earlier this month, a resurgent Morrisons reported an 8.2 per cent rise in underlying sales for the 13 weeks to May 3.

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