The leading grocer's like-for-like sales, excluding fuel, rose by 2 per cent in the 13 weeks to November 22. The figure represents a decline on the 4 per cent reported in the previous quarter.
The newly-launched Discounter range and other low-price products – which together account for 5 per cent of food and grocery sales - lowered sales by between 2 and 3 percentage points, according to Tesco.
However, the retailer said the proposition attracted 300,000 more customers each week and that volume growth was improving in its food categories.
However, it was revealed today that Tesco customers are defecting to rivals Asda, Morrisons and value operators.
The Times today reported previously unpublished data from TNS Worldpanel revealing that in the 12 weeks to November 2, about£22 million of spending was switched directly from Tesco to Asda.
Just over£10 million went from Tesco to Aldi and almost as much again to Morrisons, according to the newspaper.
Non-food sales 'steady'
Non-food sales, helped by Tesco Direct, were “holding steady”, the retailer reported. Despite a “small decline” on a like-for-like basis, the category outperformed the market as a whole.
"We are also beginning to see strongly improving sales volumes - this is an important change, as inflation begins to subside across the industry," said Tesco chief executive Sir Terry Leahy.
He said that the UK business made “solid progress in sales and profits” over the third quarter but was cautious about the wider outlook.
"We are pleased with our progress, but we are also realistic - the current economic climate, and the strain this is putting on consumers everywhere, is something that all businesses are feeling, including ours," said Leahy.
Total group sales increased 11.7 per cent in the third quarter. Total UK sales growth was 5.9 per cent.
International sales grow
International sales grew 14.6 per cent at constant exchange rates, led by a strong performance in Asia where sales rose by 29.4 per cent. Growth in Tesco's European markets slowed to 6 per cent at constant exchange rates.
Tesco said that its US Fresh & Easy stores achieved like-for-like growth and it will open 0.5 million sq ft for the fascia during the second half.
The retailer is expected to complete its acquisition of the remaining 50 per cent of Tesco Personal Finance in the next few weeks.
Cost savings in the UK have exceeded£90 million so far and it intends to reduce capital expenditure next year to below£4 billion, in light of the economic climate.