Tesco has embarked on what is thought to be its most extensive round of cost-cutting for more than five years, as the UK retail sector faces a challenging year.

Departments such as property are understood to have been told to reduce headcount by 10 per cent, but the diktat to cut back on activities, such as travel and hotel accommodation, is thought to extend across the business.

The revelation that the mighty Tesco is taking a sword to its cost base has sparked fears that less successful retailers will have to take far more severe action.

Evolution analyst Freddie George said: “It is taken that all the other retailers and grocers are looking at their costs.”

A Tesco source said: “The business is looking at restructuring and making things simpler. In the main, a lot of people who may get displaced may get jobs elsewhere because we have a lot of vacancies.”

A Tesco spokesman confirmed that there would be some job losses, but declined to comment on specific figures and said there would be a net increase in jobs this year, particularly in high growth areas such as its environmental team.

He insisted that the review is part of its budgeting and planning processes that occur each year.

However, the source said the initiative was being influenced by the “difficult market”.

In food, while Tesco’s sales are still showing robust growth, it has come under sustained pressure from resurgent rivals. For the 12 weeks to January 27, Tesco’s sales rose 5.4 per cent, which was lower than Morrisons’ 11.3 per cent and Asda’s 6.2 per cent, but marginally higher than Sainsbury’s 5 per cent, according to TNS Worldpanel.

Pali International analyst Nick Bubb said: “Tesco’s dominance of the UK [grocery] industry is now under pressure, because the other players, particularly Morrisons, have raised their game.”

This week, Tesco unveiled price cuts worth£170 million and claimed that this takes its total cost reductions to nearly£600 million since January.

Speaking at the Retail Week Conference, Tesco.com chief executive Laura Wade-Gery responded to online grocery rival Ocado’s vow to match Tesco on 3,500 products. “Ocado has probably taken on board more than it realises given that we are lowering prices all the time.”

Separately, she said that Tesco had found a site for its second dot-com-only store, believed to be in Kent.

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