Morrisons' sales growth slows in 'highly competitive' UK grocery market

By James Davey

LONDON, June 17 (Reuters) - Morrisons said underlying sales growth slowed in its second quarter as the British supermarket group pointed to “highly competitive” trading conditions.

The impact of the Iran war on energy prices, with knock-on effects on consumer spending, is adding to the challenges the UK retail sector faces.

Morrisons, the UK's sixth-largest grocer, owned by U.S. private equity firm Clayton, Dubilier & Rice, said on Wednesday its like-for-like sales rose 2.2% in the 13 weeks to April 26.

'CHALLENGING BACKDROP'

That outcome represented a slowdown from 2.8% growth in the previous quarter, reflecting what the retailer called a "challenging backdrop".

"We have made an encouraging start to the third quarter and have strong plans in place to make the most of the World Cup and Father's Day," CEO Rami Baitieh said.

"While more recent international news creates some grounds for optimism, we continue to monitor the impact of input inflation very closely," he added.

British inflation unexpectedly held at 2.8% in May as the pace of food price rises slowed, official data showed on Wednesday.

Morrisons said first quarter total sales rose 1.7% to £4 billion ($5.4 billion), while first half core earnings, or EBITDA, was £323 million, up 5.7%.

The group differs from its main rivals in that it also has its own production operations, making half of the fresh food it sells.

Industry data, published last month, showed Morrisons' sales growth continuing to underperform traditional peers Tesco and Sainsbury's as well as discounter Lidl, which recently overtook Morrisons to become Britain's fifth biggest grocer.

Market leader Tesco will update on trading on Thursday.

($1 = 0.7458 pounds)

(Reporting by James Davey; editing by Sarah Young)