Tesco Retail

Tesco said yesterday it was feeling the effects of the consumer slowdown in its home market as Britain's biggest retail chain failed to match up to sales expectations.

Tesco said conditions had been more difficult over Christmas, but it enjoyed a 3.1 per cent lift in underlying sales - against expectations of 4-4.5 per cent - in the six weeks to January 5.

"We had a good Christmas," said Andrew Higginson, finance director. "We have been affected by the market the same as anyone else . . . Most people would give their right arm for these types of numbers."

Mr Higginson said the overseas business - which stretches from the US to China - offered resilience against a softening in the UK. He said central Europe had delivered a 30 per cent sales uplift.

Overall the international business, which now accounts for nearly a quarter of group sales and a fifth of profits, enjoyed sales growth of 26.9 per cent.

The IGD, the food research body, said yesterday that it expected Tesco's international turnover to increase by Ј30bn ($59bn) to Ј74bn by 2012.

But it was the UK performance that captured the market's attention yesterday as the shares dropped 3 per cent on the disappointing trading figures. Retail stocks have been some of the worst performers in the FTSE over the past two weeks as a glut of poor trading statements have stoked wider concerns about the outlook for 2008.

Tesco said it still wanted to see a cut in UK interest rates and played down talk of food price inflation, saying that deflation in non-food items had offset any gains in food to keep inflation steady at 1 per cent.

"The consumer is under a lot of pressure. We think the Bank of England has misread the situation quite a bit over the past year, pushing rates up too fast," Mr Higginson said.

He said the newly opened Fresh & Easy chain of 28 stores Tesco had set up in southern California,