Tesco defies High Street gloom with record £2.85billion profit

Pre-tax profits at Britain's biggest retailer rose 11.8 per cent last year to £2.85 billion, it was revealed yesterday.

But Tesco claimed they have protected shoppers from the worst effects of soaring wholesale prices in the cost of food.

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It claimed that prices across its stores have risen by a modest 1.5 per cent in the past year.

That may come as a surprise to consumers who have seen some food prices - particularly bread, pasta, rice, dairy products and meats - rise much higher.

Tesco's own-label bread has gone up 20 per cent, it is charging 62 per cent more for butter, an extra 40 per cent for a dozen freerange eggs and 67 per cent more on premium tea bags.

Separately, the company has imposed price rise bans on many of its suppliers, effectively making them take the pain of rises in the cost of raw materials.

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Profit boost: Tesco Chief Executive Sir Terry Leahy has warned rivals they plan to dominate further

Figures published by the Office of National Statistics earlier this week showed the price paid by food manufacturers for British farm produce, crops and meat rose by 33 per cent in the year to March.

These rises are expected to be passed on to consumers in the coming months.

As a result, some analysts suggest household food shopping bills will typically be £600 higher this year than in

But Tesco chief executive Sir Terry Leahy insisted yesterday that price rises were being "fairly muted".

He said: "You've seen a period for many, many years in fact, where Tesco absorbed increases and reduced prices for customers through productivity gains.

"So we'll continue to do that. We'll continue to do the best we can for customers.

"In one or two commodity areas, where you're seeing a sudden price rise, then we won't be able to absorb all of that.

"And as I say, you'll see some price increases going through. But they'll be fairly muted."

Sir Terry added: "Consumers are worried, but they're still spending, it's just that they're more careful how they spend."

Some analysts believe supermarkets like Tesco do well when consumers are feeling the pinch because they turn away from specialist retailers, which might charge a little more, in favour of seeking out bargains.

The chain's internet operation Tesco.com grew 30 per cent last year, confirming its position as the biggest web grocery business in the world.

It has been boosted by the addition of Tesco direct, which sells a vast range of goods, including furniture.

Tesco has also announced it is to launch a digital music and video download service to rival Apple's iTunes and other similar services.