Sales fell by 2.6% in the latest quarter for Asda Reuters

Asda is feeling the effect of the unrelenting price war between UK supermarkets, reporting a 2.6% drop in quarterly sales.

Asda posted a 2.6% fall in like-for-like sales in the 12 weeks to the beginning of January resulting in an overall decline of 1% in 2014.

Asda chief executive Andy Clarke, said: "There's no doubt that Q4 drove a higher level of distress in the market with a significant amount of vouchering and promotional activity, I would say unsustainable medium term activity," Reuters quotes him as saying.

"You can only give away 10 pound notes for 9 pounds for so long.

"I would suggest that you can only follow that approach for a short period of time or as long as your shareholders allow you to operate at a very different level of profitability."

Asda spent £300m on discounting prices in 2014. Looking ahead, the business plans to spend £600m this year on building and improving its current store network. It will open 17 new stores this year, and improve 62 of its current outlets.

"I'm pleased that we can announce our continued investment in the UK with £600m for new and improved stores in 2015. With such a powerful force like Walmart behind us that fully supports our strategy, we're in a unique position in a difficult market – a position of great strength," Clarke said in a statement.

Asda, Sainsbury's, Morrisons and Tesco are locked in a discounting battle to protect their market shares from Aldi and Lidl.