Safeway has upped the stakes in the battle of the baskets by announcing that another £120m (US$170m) will be passed back to consumers in price cuts on over 100 branded goods this year.

The 485-strong supermarket chain, controlled by ex-Wal-Mart executive Carlos Criado-Perez, hopes that it will recoup its losses through an increase in sales generally, and so far Safeway's strategy to deeply discount staple products such as cornflakes while non-discounted items remain a little more expensive than at competitors appears to have paid off.

Recently announcing its Q1 like-for-like results (to end of June), Safeway unveiled a 6.1% increase in sales. Total sales were up 6.3%. This is the first time sales growth has topped 5% for seven consecutive quarters. Analysts stress however that between 1% and 2% of this growth may be attributed to general food price inflation.

Many analysts remain sceptical of the recovery story at Safeway, and have indicated it is not sustainable. ABN Amro advises investors to sell. Indeed, investors responded quickly to the results, and the share price fell 2% as some sought to take the profits and sell while they could.

Tesco and Asda have already promised to invest an extra £60m and £100m in price cuts respectively.