Tesco has said a focus on value amid the continuing squeeze on shoppers’ budgets has paid off through a rise in half-year profits.

The UK’s biggest retailer raised its annual guidance on the back of market share gains versus major rivals over the six months to 24 August.

It also credited higher demand for its Finest premium ranges, which were almost 15% up on the same period a year ago.

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Total sales excluding fuel were 4% up at £31.5bn – though its UK like-for-like sales growth slowed in the second quarter.

Nevertheless, its preferred measure of retail adjusted operating profit was up 10% at £1.56bn.

The company said that it now expected the annual figure to come in about £2.9bn.

That was up from a £2.8bn prediction earlier that would have been flat on its previous financial year.

Tesco said its focus on delivering value on everyday goods, aided by its Clubcard loyalty and Aldi price-matching schemes, had driven volume growth over the period.

It noted industry data showing its market share at its highest level since January 2022 at 27.8%.

Tesco said that Clubcard now covered 23 million households, claiming it was saving them up to £385 off their annual grocery bills.

It had cut prices, the company said, on more than 2,850 products over the six months by an average of about 9%.

Ken Murphy, the chief executive, said the company was “gearing up for a good Christmas” as he was hopeful over consumer demand.

He told investors: “We’ve been working really hard to offer our customers the best possible value, quality, and service and they are shopping more at Tesco as a result.

“We have lowered prices on thousands of lines, launched or improved over 860 products in partnership with our suppliers and growers, and our customer satisfaction scores continue to improve across a broad range of measures.

“The combination of price, quality and innovation means we are as competitive as we have ever been, and we have been the cheapest full-line grocer for nearly two years.”

Discounters have been eating into the market shares of the likes of Tesco, Sainsbury’s, Morrisons and Asda for almost 15 years.

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The cost of living crisis, sparked by the energy-driven surge in inflation in 2022, forced the big four to invest more in prices.

While Asda and Morrisons, which are now both privately owned, have struggled to keep pace, Sainsbury’s and Tesco’s market shares have proved more resilient.

The Sainsbury’s boss Simon Roberts recently warned that consumer confidence would be unlikely to pick up until the government sets out its tax and spending plans in the budget later this month and interest rates fall further.

Recent surveys have shown confidence plunged after Prime Minister Sir Keir Starmer’s warnings about the
state of the public finances and the likely need for tax increases.

Tesco shares rose by almost 2% at the open.

Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “Tesco’s strategy continues to deliver, with rising revenues and strong profits growth underpinned by increased market share – which now stands at nearly 28%.

“The supermarket group is performing very well in a highly competitive sector – particularly faced with inflationary pressures – built on a foundation of a simplified business model, disciplined capital structure, and investing for growth.

“With the outlook in Tesco’s markets potentially looking more favourable, the group is in a very strong position to protect its market share through its loyalty programmes – namely Tesco Clubcard – and high levels of customer satisfaction.

“The sale of its banking operation and ample free cashflow also provide Tesco with plenty of dry powder to make its next big move”, she concluded.

Financial markets are now pricing in a shock interest rate cut for the UK at the next Bank of England meeting following remarks by its governor.

There was a huge shift in expectations after Andrew Bailey told the Guardian that the bank could be “a bit more aggressive” in its approach.

He talked about inflation pressures being less persistent than expected but tempered his comments by saying that its main indicators on the pace of price growth would need to continue to fall.

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Mr Bailey also worried about the potential threat to prices from oil costs, given events in the Middle East. “Geopolitical concerns are very serious”.

“It’s tragic what’s going on”, he said of the escalation involving Israel and Iran’s proxies.

“There are obviously stresses and the real issue then is how they might interact with some still quite stretched markets in places.”

He said there appeared to be “a strong commitment to keep the [oil] market stable” but “there’s a point beyond which that control could break down if things got really bad”.

“You have to continuously watch this thing, because it could go wrong,” he concluded.

Oil costs have remained relatively stable this week despite worries over the potential threat to supplies in the event of a war between Israel and Iran.

Despite the caveats from Mr Bailey, 98% of market bets were on a rate cut of 0.25 percentage points for the Bank’s meeting on 7 November. Most also saw a further cut coming in December.

Ahead of Thursday’s market open, a majority of investors had expected no change to the rate until December, given sticky elements from services inflation and continuing pressure from the pace of wage rises in the economy.

The Bank had warned in August that it would take a data-driven approach to cuts beyond the quarter point reduction it introduced at that time.

The Bank rate was held at 5% at September’s meeting.

August’s decline marked the first downwards move to borrowing costs since the Bank began hiking rates aggressively in December 2021.

The rises were initially a response to the price growth seen as the economy re-opened following COVID restrictions but inflation soon soared when Russia’s invasion of Ukraine sparked the energy-driven cost of living crisis.

Market hopes of a reduction as soon as the next meeting of the Bank’s monetary policy committee could help fixed rate mortgage costs ease further and more quickly.

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The shift in rate cut expectations meant that the pound’s winning run of 2024 found a reverse gear.

Sterling was a cent and a half down against the US dollar and a cent lower versus the euro to stand at $1.31 and just under €1.19 respectively.

Higher interest rates tend to be supportive of a domestic currency.

The pound’s decline was also aided by closely-watched business survey data that showed a decline in the pace of price growth being passed on in the services sector – bolstering Mr Bailey’s rate cut case.

The FTSE 100 opened 0.2% up, with the weaker pound boosting constituents who make money abroad, as those revenues are worth more when booked back in the UK.

Housebuilders were also among those to benefit as the prospect of lower interest rates will encourage buyers on affordability grounds.

Banks could be given extra time to investigate suspicious payments under an effort to curb fraud.

The Treasury said proposed new laws would enable banks to pause transactions for up to 72 hours where there are reasonable grounds to suspect a payment is fraudulent.

Currently, banks must either process or refuse a payment by the end of the next business day.

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The move, which has the support of the banking industry’s trade body, follows a row over the maximum amount a bank or payment firm must refund victims of so-called authorised push payment fraud – the most common type.

That is when individuals or businesses are tricked into sending money to a fraudster’s account.

Banks successfully lobbied for a lower limit, which was eventually set at £85,000 per claim. It comes into force on Monday 7 October.

The government said the proposed additional powers to delay payments would better help banks slash the estimated £460m lost to fraud in the last year.

It accounts for over a third of all reported crime in England and Wales and also includes losses from purchase and romance scams.

Under the planned rules, if a bank finds evidence to suggest a payment is fraudulent, it would need to inform the customer about a delay, and explain what they need to do in order to unblock it.

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Banks would also have to compensate customers for any interest or late payment fees they could incur as a result of delays.

Economic Secretary to the Treasury, Tulip Siddiq, said: “Hundreds of millions of pounds are lost to scammers each year, targeting vulnerable communities and ruining the lives of ordinary people.

“We need to protect these people better, which is why we are giving banks more time to investigate suspicious payments and break the criminal spell that scammers weave,” she added.

Ben Donaldson, managing director of economic crime at trade body UK Finance, said the additional time would allow payment service providers to contact customers at risk.

“This could potentially limit the psychological harms that these awful crimes can cause and stop money getting into the hands of criminals,” he said.