Tesco is putting renewed pressure on suppliers to bolster margins, a City analyst has claimed.

Next week, Tesco is set to provide a trading update for its third quarter, which ran until 23 November.

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According to Cantor Fitzgerald food retail analyst Mike Dennis, Tesco is expected to report another fall in sales but also post “stable” margins.

However, Dennis argued, with sales falling, Tesco’s margins could only be holding firm if it was demanding more money from suppliers. 

“The only answer there can be, in our view, is that Tesco is again demanding/taking money from suppliers trading accounts, that Tesco has recently been in contact with hundreds of manufacturers either demanding additional payments due to lower commodity prices or deducting money from supplier trading accounts before they are paid to suppliers,” Dennis wrote in a note to clients.

The analyst claimed Tesco had “moved early” before the UK’s Groceries Supply Code of Practice, set up to govern relations between suppliers and retailers, comes into full force next month.

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“The Groceries Supply Code of Practice was put in place in summer 2013 to monitor interactions between retailers with over GBP1bn of sales and suppliers. GSCOP has several objectives but mainly wanted to stop retailers making variations to supply agreements without notice or taking position payments unless in relation to a promotion.

“It is our view that Tesco has again overstepped the mark and the situation is very difficult for many suppliers. Some suppliers may want to negotiate with Tesco, others may withhold stock or demand repayment or go to GSCOP, but many may just accept the situation to maintain good relations with Tesco. Interestingly, we assume that Tesco has moved early to obtain extra supplier payments as GSCOP’s investigative powers do not come into full force until December this year.”

In response, Tesco said: “The analyst is clear it is his opinion, based only on speculation, but he doesn’t seem to have taken our previous guidance into account. In our interim results presentation last month, we set out how the general merchandise transformation programme will be a drag on our sales growth but beneficial to the overall UK margin, helping to offset some of the other investments we are making for customers.”

Tesco is set to report its third-quarter update on Wednesday (4 December). The consensus forecast among analysts is for a 1.5% fall in UK like-for-like sales and a 5% drop in international like-for-likes.