A TRADING update from retail giant Tesco tomorrow will shine the spotlight on the supermarket sector this week ahead of the all-important Christmas season.

Tesco is expected to report sales slipping back into the red in its third quarter as rivals turn up the heat on the UK’s biggest supermarket chain.

The grocery giant gave hope of better trading last month when it said like-for-like sales had edged 0.1% higher in its second quarter, following six quarters in a row of falling sales.

But analysts are forecasting the update to show a return to sales declines as general merchandise continues to take a hit.

Fierce competition between the major players has seen Tesco lose market share in recent months, with smaller rival Sainsbury’s in particular piling on the pressure.

Tesco reported its first drop in UK profits for two decades last month when half-year figures revealed a 12% fall to £1.1 billion.

Recent figures from Kantar Worldpanel showed Tesco’s market share slipping from 31% to 30.5% in the 12 weeks to October 28.

A resurgent Sainsbury’s saw its market share rise to 16.8% as it benefited from its Paralympics sponsorship and investment in cheaper own-brand products.

Tesco has been fighting back with targeted offers, using the data collected through its Clubcard promotion, while also driving sales through its online grocery business.

But the group is expected to have suffered from falling non-food sales in the third quarter, which will offset a rise in grocery sales, according to experts at Nomura.

Nick Coulter, Nomura retail analyst, is pencilling in a 0.9% fall in like-for-like sales, excluding VAT and fuel, in Tesco’s third quarter.

Keith Bowman, equity analyst at Hargreaves Lansdown, said Tesco may also be suffering from “a policy not to chase sales of lower margin items, particularly in the electrical arena”.

Tesco’s international arm is also under pressure after the division – once the driving force behind the group – saw profits fall to £378m.