Morrisons is expected to report a modest sales increase in next week's trading update - but City analysts are increasingly bullish about the company's longer term prospects.

Ahead of the retailer's second-quarter update, research firm TNS Worldpanel's quarterly analy­sis revealed that while grocery shoppers spent 3% more at Morrisons compared with last year, the company lagged the industry's overall growth rate of 4.6%. Its market share remained unchanged at 11.3% for the quarter.

City analysts said they were expecting Morrisons to report sales growth of about 4% for the first half of the year. HSBC analyst Greg Lawless said: "Morrisons is lagging, but the ship is stable and heading in the right direction. However, all the appealing upside is in a one to three-year time frame. It is about margin recovery this year."

Morrisons shares hit a four-month peak this week.