The cuts, which come into effect, follow the recent run of price cuts and fuel prices are predicted to fall further as the price of a barrel of crude oil continues to drop.

Peter Cattell, fuel director for Tesco said: “We know that lots of customers will have plans for the Bank Holiday weekend, so we’re dropping the price of our fuel to help them enjoy the weekend even more. This reduction of 2p per litre on petrol and 1p on diesel, at all our 500 petrol filing stations, will mean millions of customers save money by shopping at Tesco.”

RAC spokesman Pete Williams greeted the news, saying: “The decision by the supermarkets to cut petrol by 2p a litre and diesel by a penny will be warmly received by drivers planning on filling-up ahead of the busy Bank Holiday getaway weekend when we are predicting up to 14 million additional car journeys.

“We anticipate that other retailers will quickly follow suit as the wholesale price of fuel continues to drop in line with the falling price of crude oil as stock markets and commodity prices stumble.

“Crude oil prices have been in decline for over six months with reducing demand from the emerging markets and particularly China where the economy has faltered. This has meant that there is an oversupply of fuel on world markets which has been further compounded by the move by Saudi Arabia to open two major oil refineries pumping and OPEC’s  stance that they do not intend to cut production.

“The current price of a barrel of crude is just below $44 but if prices continue to drop this could get closer to the critical price of $40 a barrel which could push UK average pump prices below £1, however, that would require a further 10% drop in the markets.”

The announcement comes as HMRC publishes new AFR rates effective from 1 September 2015.