Tesco said it had to absorb "significant external cost increases" this year, as it posted a 20.3% increase in annual pre-tax profits to £2.6bn this week.

According to the retailer, increased productivity and good expense control enabled it to absorb higher oil-related costs and increases in local business taxes.

Core UK sales increased by 9% over the year to 24 February, which Tesco said was boosted by a 40% increase in sales of organic food and the introduction of 2,000 premium lines. In a market in which food price inflation had returned for the first time in several years, driven by higher energy costs and strong seasonal food prices, Tesco said it had invested more than ever in helping to keep prices as low as possible.

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