A move by Tesco, the largest retail chain in the republic, to reduce 12,500 prices in 11 of its stores along the border with Northern Ireland has prompted an all-out supermarket price war.

The stragegy adopted by Tesco is directly influenced by the stampede of shoppers heading north for cheaper groceries; by dropping its prices it hopes to tempt its former customers into staying south of the border. It has also promised to adjust its prices accordingly throughout the republic (although tellingly it fails to provide a date when this will happen) and says it is funding its price cuts from savings gained by buying brands directly from the UK instead of through Irish distributors.

Now German discounter Lidl has stepped into the fray, cutting prices across a wide range of fresh and packaged food while claiming that the reductions were being introduced without shifting business overseas. Meanwhile Irish-owned retail giant Dunnes Stores is expected to respond within days, amid renewed specualtion that it is to be sold off to overseas multinational Asda, who have repeatedly denied the claims. Asda have benefited hugely from the growth of cross-border shopping as it has a substantial presence in Northern Ireland.

Tesco said the response to its announcement by customers in the republic has been 'excellent'.