The welcome reduction in pump prices came as oil giant BP and supermarket chains Asda and Morrisons all cut the price of a litre of unleaded petrol to 99.9p. BP said the new price would apply "at a number" of its outlets.

Asda, whose petrol price had previously been 104.9p a litre, also reduced the cost of diesel from £116.9p a litre to 110.9p. A litre of diesel was cut to 111.9p by Morrisons and BP.

Supermarket Sainsbury's also said: "We are planning a price cut tomorrow and will continue to monitor prices daily."

This is the first time since last autumn that petrol has been under £1 a litre in Britain, after unleaded soared to more than 120p a litre and diesel over 130p during the worst of this year's price rises.

The price of oil on world markets has fallen from a high of around 147 US dollars a barrel earlier this year to a 14-month low of around 75 dollars yesterday.

A senior analyst at energy adviser John Hall Associates, Damien Cox, predicted further falls as the outlook for the worsening economies becomes clearer over the coming months.

He said: "With the economic situation looking the way it is, I don't think we have seen the bottom yet. There's still a little bit to come out of this over the next few months."

In September last year, unleaded cost an average 95.2p per litre, with diesel averaging at 96.9p.

Asda trading director Darren Blackhurst said last night: "We are committed to delivering the best value to customers across the board and we review our prices daily to achieve this.

"Drivers should not be paying more than 99.9p a litre for unleaded fuel based on current oil prices."

RAC motoring strategist Adrian Tink said: "Finally we have a bit of respite for Britain's hard pressed motorists. For the past year they have been paying over £1 a litre for petrol – a figure that went up to £1.19 in July.

This has hit Britain's motorists hard in a tough economic climate, the average motorist spending over £1,300 a year to fill their tank. At least that figure should start to come down now and motorists will see a significant difference in their wallet when they next visit the forecourt."

Mr Tink urged all retailers to follow with their own price cuts.

He went on: "At present there are often huge differences regionally, which can see anything up to 10p a litre extra being paid at the pumps. We are calling on all retailers across the country to get their petrol prices under the £1 barrier quickly to help Britain's beleaguered motorists."

AA president Edmund King said the Asda and Morrisons announcements represented "a full-blooded phase in the petrol price war".

He went on: "These savings give driver and family budgets a very welcome boost when other bills are exerting severe pressure. They should also boost the economy by giving millions of motorists more spending power.

"However, the Government should not take these price cuts as an excuse to hike up fuel duty.

"We suspect these new prices are right on the edge, if not below the point that retailing petrol remains profitable. This will be hard for other retailers to match, although falling fuel wholesale prices from reduced demand and cheaper oil will catch up."