LONDON: Tesco Plc, the world's No 3 retailer, posted quarterly sales growth towards the bottom end of forecasts, held back by a drop in food price inflation, but said a gradual consumer recovery remained on track.

"We are seeing improving customer confidence and encouraging trends in both the UK and our international businesses, although recessionary conditions still exist in a number of markets," Tesco Chief Executive Terry Leahy said.

The supermarket group, which makes about three quarters of its profit in Britain, said sales at British stores open at least a year rose 2.8 percent, excluding petrol and VAT sales tax, in the 13 weeks to Nov 28 - its fiscal third quarter.

That was down from 3.1 percent in the second quarter and just shy of the average forecast of 3 percent in a Reuters poll.

Richard Hunter, head of UK equities at brokerage Hargreaves Lansdown, said he detected "a tinge of disappointment in this update, set against the high expectations which Tesco attracts".

Britain is taking longer to emerge from recession than other major economies and a retail survey earlier yesterday signaled only a gradual recovery. The government will also need to raise taxes to tackle its huge deficit and is expected to confirm today it is reversing a cut in VAT sales tax which was introduced last year in the depths of the recession.

Tesco Finance Director Laurie McIlwee said he did not expect the reversal to derail recovery, though he warned against raising the rate above its former 17.5 percent level.

"I don't think that the impact (of VAT rising to its former rate) will reverse the trend in customer confidence," he said.

"If the VAT goes above that it could be more negative. Just as consumers are getting more confident, to start indirectly taxing people (more) will be a strain on their budgets."

Reuters

(China Daily 12/09/2009 page17)