The impacts of higher prices are being felt in the Tesco boardroom as profits have fallen despite an increase in sales.

High energy and labour costs, along with food inflation at 17.5%, have hurt the company’s earning power.

But the retailer also announced a reduction in the price of milk for the first time since May 2020. The cost has dropped from 95p to 90p a pint and from £1.30 to £1.25 for two pints.

The chain also announced it will buy back another £750m worth of shares.

It reported profits of £2.63bn, down from £2.82bn the year before despite revenues rising to £65.7bn over the year, an increase from £61.3bn a year ago.

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“It’s been an incredibly tough year for many of our customers”, chief executive Ken Murphy said.

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“Our results reflect our continued investment in delivering great value and quality for our customers, whilst at the same time looking after our colleagues.

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“This is despite unprecedented levels of inflation in the prices we have paid our suppliers for their products, and the cost of running our own operations.”

Tesco still enjoys a 27% market share, the largest of any supermarket, despite increasing competition from low-cost German retailers Aldi and Lidl.

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