Tesco said yesterday that electrical goods and toys were its fastest-growing merchandise areas as the retailer shrugged off talk of a grim Christmas on the high street to deliver continued strong trading.

Shares in Britain’s largest supermarket chain slipped 4p to 393½p yesterday as expansion into new stores that was slower than expected led to a lower than hoped-for rise in total sales in the UK.

Analysts were also disappointed by the rate of expansion outside the UK, where Tesco admitted that its Hungarian and South Korean stores had been affected by local economic difficulties.

Sales rose by 17.9 per cent at constant exchange rates, about 2 per cent less than the previous quarter and behind some analysts’ hopes of a 20 per cent increase. Even so, total sales in the UK rose by 8.5 per cent and underlying sales by 5.6 per cent in the three months to November 25 against strong trading figures in the comparable period last year.

Andy Higginson, finance director, said: “We are coming into a softer period, but we are really pleased with how trade is going. Christmas is not happening yet, but we are feeling confident.” He said that the UK store-opening programme was “on track” and that almost a third of the company’s planned new space would open in the fourth quarter.

Mr Higginson added that that customers continued to trade up to more premium foods and Tesco was continuing to see double-digit rises in sales of non-food items and continued to grab market share.

Tesco is expected to have taken another 1 per cent of the non-food market in 2006 and analysts said that Tesco’s growth was likely to impact specialist high street retailers of all kinds of goods, including CDs, DVDs, electrical items and clothing. Sales of toys at Tesco are understood to have risen by more than 20 per cent in the period, compared with last year, while clothing sales have also risen, despite a generally dismal time for fashion retailers on the high street resulting from warm weather.

Richard Hunter, head of UK equities at Hargreaves Lansdown Stockbrokers, said: “It is a sign of the lofty expectations surrounding Tesco that there is a minor tinge of disappointment with today’s comments, since the company has not exceeded expectations. Nonetheless, these figures will again send a shudder down the spines of their competitors.”

Tesco reported a 0.8 per cent rise in prices, if the impact of petrol deflation was stripped out, as fresh produce and meat prices rose, but Mr Higginson said that price inflation had eased in the latter part of the quarter and that trend was likley to continue.

Merrill Lynch, Tesco’s broker, reduced its profits forecasts slightly, saying that British and international sales growth was a little behind where expected and that it appeared that the “unusually favourable” conditions in the UK during 2006 helped by a measure of price inflation were likely to abate.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax