Price war at pumps

A petrol price war was triggered today when Asda slashed the price of a litre of unleaded to below 80p.

The move follows months of spiralling world oil prices. Asda said it was bringing down the forecourt price of unleaded by 2p a litre to 79.9p at its 150 garages. It is the equivalent of 9p off a gallon.

The reduction, saving about £1 on filling up a typical petrol tank, means the price of Asda's fuel will be almost 3p below the 82.3p national average. The move is almost certain to be followed by other retailers.

Diesel, the fuel used by most freight operators and four out of 10 car owners, is also being cut. It will come down by 4p a litre to bring it in line with unleaded for the first time in three years. The discounting will bring much needed relief to drivers who were warned last week that the 90p or even £1 litre of petrol was on the way following a spate of terrorist attacks in Saudi Arabia, the world's leading oil producer.

Despite recent measures by Opec to bring down oil prices, motorists have been angered that average petrol pump prices in Britain had barely dipped in response. Some of the most expensive garages are still charging £1 a litre.

At one Total garage in Chelsea the price of super unleaded actually went up from £1.12 last week to £1.15 yesterday.

The cuts announced by Asda will take the heat off Gordon Brown, who has faced the renewed threat of protests and blockades by hauliers and farmers angered by the cost of fuel. The Chancellor has said will review a planned 1.9p a litre increase in petrol duty in September. This week the RAC warned that the typical car now costs £5,256 a year to run, more than the average mortgage.

Asda, which is owned by the US retail giant Wal-Mart, claimed it was acting in the interests of customers by passing on reductions in the international oil price without delay.

It called for a response from other petrol retailers, the vast majority of which are still selling petrol for more than 80p a litre. Paul Mancey, Asda's trading director, said: "The last to raise prices and the first to drop them - that's the simple promise we made to our petrol customers two years ago."

But the move will put pressure on thousands of independent forecourts struggling to survive in the face of competition from the supermarkets. The giant retailers often sell petrol as a loss leader to attract people into their stores.

Over the past 15 years the number of petrol stations in Britain has fallen from 18,000 to 10,000.