Supermarket group Tesco, Britain's biggest retailer, said Wednesday it returned to profit in the first half as its campaign to attract customers with low food prices paid off.

Net profit came in at £637 million ($846 million, 719 million euros) in the six months to August, the world's third-largest supermarket group said in a statement. 

That compared with an after-tax loss of £91 million a year earlier. 

"We are continuing to make strong progress," chief executive Dave Lewis, as the group also announced it would resume dividend payments to shareholders.

Tesco shares initially jumped 2.0 percent on the news, but subsequently fell by a similar amount as traders' attention switched to the high cost of the group's planned £3.7-billion takeover of wholesaler Booker.

Hargreaves Lansdown analyst, Laith Khalaf, said there were not "many things more telling about the health of company than its ability to pay a dividend, and Tesco's return to the register after a three-year hiatus speaks volumes about the progress the company has made." 

Nevertheless, "the Booker merger is increasingly looking like a potential banana skin for management," the analyst said.

Tesco said revenues grew by 3.7 percent to £28.3 billion over the reporting period, with customers attracted to Tesco stores and its online offerings by the "lowest level of food price inflation... amongst peers" operating in the UK. 

British inflation has risen sharply in recent months as a Brexit-hit pound raised import costs.  

That, in turn, has increased the likelihood of the Bank of England raising interest rates.

- Competitive edge -

ETX Capital analyst Neil Wilson said Tesco's drive to keep down prices was giving the company "an edge over the other big players in terms of coping with discounters," such as growing German players in the UK market, Aldi and Lidl. 

"At the same time, it's making big strides in reducing its own operating costs," Wilson said.

Tesco is the world's third-biggest supermarket chain after France's Carrefour and global leader Wal-Mart of the United States.

The group had run up a record loss of £5.7 billion in its 2014/2015 business year, after a vast property writedown and challenging home trade. However, it rebounded into slender profit last year.

Tesco has meanwhile been accused of overstating profits in 2014.

Three former Tesco executives were accused of "cooking the books" to overestimate profits by £250 million, prosecutors said at the start of their trial last month.

Following the alleged incident, Lewis, a former Unilever executive, was brought in to replace long-standing chief executive, Philip Clarke, and oversee a drastic restructuring of the group.