Tesco has raised its profit outlook as it expects households to splash out this Christmas – despite buying less alcohol – as they shrug off “uncertainty” over the Iran war.

The UK’s biggest grocer said sales rose just 2% to £33.8bn in the 26 weeks to 29 August, but underlying profit was up 6.5% to £1.8bn.

Ken Murphy, the chief executive of Tesco, said growth had been helped by strong online sales, which were up 8%, and a 9% jump in revenue from its premium own-label Finest range.

He said: “Consumers in the UK have been pretty resilient in an uncertain environment and there is a sense that customers want to enjoy Christmas, given everything that is going on in the world.”

The retailer had bought more stock of “key Christmas lines”, understood to be foods such as turkey and mince pies, and added 10% more delivery slots for its online grocery business. It is also ramping up its in-house rapid delivery service, Whoosh, and has signed new partnerships, including with Deliveroo.

Murphy said he expected Britons to seek out a “marginally healthier Christmas” with higher sales of low-alcohol and no-alcohol drinks, including ready-mixed mocktails, but that families would still treat themselves as “customers do love to indulge”.

He said he was not expecting food supplies to be hit by this summer’s drought. Tesco had also hedged its energy costs into next year and was making savings across the business to help keep prices down for shoppers.

He said the business still had room for growth despite being almost twice the size of its nearest rival, Sainsbury’s, with a 28% market share, and that he did not “dwell too much” on the possibility of its closest rival acquiring another leading supermarket.

Sainsbury’s is understood to have walked away from merger talks in January with the UK’s sixth-biggest supermarket, Morrisons, prompting consolidation chatter across the industry.

“Whatever happens in the market we will respond to it,” Murphy said. While Tesco is expanding its reach with financial services and more fashion, he said its strategy “begins and ends in winning in food”.

The company added: “While consumer confidence has remained relatively resilient in the first half of the year, ongoing geopolitical tensions continue to create uncertainty and we remain focused on helping customers get the best possible value.”

Earlier this year, Tesco warned that profits could fall in the year ahead, citing increased uncertainty caused by the conflict in Iran, which began in late February. However, some economic indicators have suggested that the war has not yet had a significant impact. Last week, official estimates for UK growth in the second quarter were upgraded.

The company said it now expected to make underlying annual profits of between £3.15bn and £3.3bn. That represents an upgrade from its previous expectation of at least £3bn in profits but the bottom end of the range would still mark a fall from a year earlier.

Sales at established UK Tesco stores were up 1.5% as food sales motored, but the group’s Booker wholesale arm continued to struggle, with sales falling 2.6%.

The supermarket said it was increasingly using artificial intelligence across the business, including in a meal-planning assistant that was tested from April with 280,000 staff before being launched for customers in September.

It said AI was also helping to cut costs by making in-store stock replenishment more efficient and improving energy efficiency in its supermarkets.

Tesco shares rose 4% on Thursday morning.