The move immediately sparked a reaction from Sainsbury, which launched its autumn price savers campaign last week, including "buy one, get one free" deals on 700 items. "If there are any products cheaper at Tesco, we will match them," Sainsbury said.
Shares in all the supermarket groups fell as the City anticipated a reaction from rivals. Asda is tipped as the most likely to respond as it has styled itself as the lowest price supermarket. Tesco's shares fell 9p to 291p, Sainsbury dropped 8p to 376.5p, and Asda closed 4p down at 106p.
Tesco has struck while Sainsbury is promoting its loyalty card and new figures yesterday showed it was losing ground to Tesco once more in the battle for market share.
Figures compiled by market research group AGB showed that in the four weeks to 25 August, Tesco's share of the UK market increased from 20.7 to 21.4 per cent, compared with the same period last year. Sainsbury's share fell from 19.1 to 18.6 per cent. Safeway and Asda recorded strong gains.
Tony MacNeary of NatWest said the move would weaken the sector and compound the problems of weaker competitors.