TESCO believes it is making progress in its supermarket business after reporting a slower drop in quarterly sales while its Edinburgh based bank has continued to grow.

Chief executive Dave Lewis, who joined Tesco in September, told shareholders at the company's annual general meeting the improvements he has instigated are "starting to have an effect".

At the AGM in London there was a muted rebellion against the company's plans to pay-off former boss Philip Clarke with an 11 per cent vote against the remuneration report.

Shareholder body Pirc had recommended voting against the plan to give £1.2 million to Mr Clarke as well as continuing to pay his £764,000 salary until January.

Former finance director Laurie McIlwee was also paid about £1 million on leaving in addition to salary payments.

Tesco said it plans to claw back leaving payments if it finds there was gross misconduct following the discovery of an accounting black hole.

Annual figures in April showed Tesco reporting a £6.4 billion loss, one of the largest in UK corporate history.

While like-for-like sales in the UK for the 13 weeks to May 30 were down 1.3 per cent that was an improvement on the 1.7 per cent recorded in the final quarter of the previous financial year.

The business said it now has 180,000 more customers shopping with it in the UK with like-for-like volumes rising 1.4 per cent and transactions up 1.3 per cent.

Mr Lewis said: "We are fixing the fundamentals of shopping to win back customers and relying less on short-term couponing. Customers are experiencing better service, better availability and lower, more stable prices and are buying more things, more often, at Tesco."

Across the group as a whole sales were down 1.3 per cent although most parts of the business recorded an improvement on the prior three months. Tesco said that after stripping out fuel and currency fluctuations the decline would have been 0.5 per cent.

The Republic of Ireland was 4.4 per cent down with Asia three per cent behind. Across central Europe and Turkey there was 2.2 per cent growth which was said to have been helped by performance in the Czech Republic and Slovakia.

At Tesco Bank, which is headed by Benny Higgins, underlying sales grew 3.9 per cent in the period thanks to expansion in the loan and mortgage markets.

However a reduction in usage fees by the likes of Mastercard and Visa, ahead of caps being brought in across Europe within the next year, led to lower reported growth of 0.9 per cent.

Mr Lewis added: "Whilst the market is still challenging and volatility is likely to remain a feature of short-term performance, these first quarter results represent another step in the right direction."

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, said: "One swallow does not make a summer, but every little helps as Tesco seems to have stemmed some of its recent declines in this quarter.

"The like for like sales numbers generally still remain in negative territory, but there are nonetheless signs of progress, not least of which seems to be a softening of customer disapproval towards the company."

Mike van Dulken, head of research at Accendo Markets, said the numbers suggest the turnaround plan is starting to pay off although the recovery in sales remains tentative.

He added: "While the sector price war continues, higher volumes in Q1 (+1.4 per cent) imply internal issues being resolved and its own price cuts paying off, a combination which could help the UK's leading grocer begin to claw back some of the market share lost to the hitherto successful discounters."