Tesco posted a drop in underlying British sales for the fourth quarter in a row as cash-strapped shoppers cut spending on discretionary goods like clothing and electricals and gave a muted reaction to price cuts.

But the international business excluding fuel and on a like-for-like basis was up 1.1 per cent, held back by disruption in Thailand caused by flooding.

Tesco makes around two thirds of its sales and three quarters of its profit in Britain.

The company, which takes about one in every £10 spent in British shops, said sales at British stores open more than a year, excluding fuel and VAT sales tax, were down 0.9 per cent in the 13 weeks to November 26th, Tesco's financial third quarter.

That compares with analysts forecasts in a range of down 1.0 per cent to up 0.5 per cent and was unchanged from the drop of 0.9 per cent in the second quarter.

It said it was making good progress in the third quarter against the background of challenging conditions for consumers.

"We are performing broadly in line with market expectations for the group and the outlook for the year as a whole remains unchanged, ahead of the important seasonal trading period," it said.

Reuters