Supermarket Tesco has admitted that it must “do better” in the UK after missing growth targets and seeing sales fall on a year ago.

The retail giant promised new products and services after revealing a 0.7 per cent drop in fourth-quarter UK like-for-like sales, excluding VAT and fuel.

Its fast-growing Asian business helped offset a tough domestic market, with Tesco reporting another year of record underlying profits – up 12.3 per cent to £3.8 billion in the year to February 26.

But new boss Philip Clarke, who took over from Sir Terry Leahy last month, said the UK performance was not good enough as it failed to keep up with rivals in areas such as clothing and electrical goods where sales dropped 3.3 per cent in the second half.

He said: “We didn’t achieve our planned growth in the year and this was only partly attributable to the deterioration in the consumer environment during the second half.

“We can do better and we are taking action in key areas – for example, to drive a faster rate of product innovation and to improve the sharpness of our communication to customers.”

The fourth-quarter sales fall marks the first such dip into negative territory for nearly two years.

Mr Clarke vowed to up Tesco’s game as part of a six-point plan and said the group would have to tap into a trend for far more cautious consumer spending.

Tesco said trading would remain challenging, particularly on non-essential items.