Tesco today defied the despair on the high street with record profits of £2.85billion.

The supermarket giant said its profits jumped 12 per cent last year despite "challenging market conditions" as the credit crunch took hold.

Chief executive Sir Terry Leahy warned competitors it planned to dominate even more during the slowdown, saying: "It is not all gloom, there are opportunities."

Tesco said it would cut prices to help families "whose budgets have become increasingly stretched by higher interest rates, fuel costs and taxes".

The figures come the day after statistics showed food prices rising at their fastest rate for 17 years. The world's third largest retailer is now on course to join the elite group of British companies that make £3 billion profit a year, just four years after it broke the £2 billion barrier and eight years since it went past £1 billion. Group sales rose 11 per cent to reach £51.8 billion, or just under £1 billion a week.

Figures from the British Retail Consortium show the rest of the high street suffering with sales down 1.6 per cent in March, the first fall since July 2005.

Sir Terry added: "Customers are more likely to look for value and value is one of the strengths for Tesco. We are a company for all seasons."

But the strong figures were greeted with anger by campaigners against Tesco's remorseless expansion.

Andrew Simms, author of the anti-supermarket book Tescopoly, said: "The fact that Tesco's already vast profits have risen still further is evidence of a market failure more than a business success. In a truly open and competitive market, it would be impossible for a single retailer to extract so much profit from the pockets of consumers.

"City analysts believe there is already nothing to stop Tesco doubling its floor space in the UK with a resulting loss of distinctiveness and vitality in communities the length and breadth of the country."

Sandra Bell of Friends of the Earth said: "Tesco's takeover of Britain's towns continues unabated, squeezing out local shops and stamping out choice, and its huge profits come at the expense of the farmers that supply it."

She also believes that a Competition Commission's report next month will give little help to small shops.

Tesco said it had made "a strong start" to the new financial year. It plans to open 11.5 million sq ft of new store space this year of which 80 per cent will be outside the UK.

In early trading, Tesco shares shot up 18p, or almost five per cent, to 409p, adding almost £1.5 billion to its market value.