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The competition watchdog has blocked Sainsbury’s £1 billion merger with Asda on the grounds that it would result in higher prices for consumers and damage competition.

In its final report into the deal, the Competition and Markets Authority (CMA) found that it would lead to increased prices in stores, online and at petrol stations across the UK.

Shoppers and motorists would be “worse off” if Sainsbury’s and Walmart-owned Asda were to merge, the CMA said, adding that a tie-up would lead to price rises, reductions in the quality and range of products or a poorer overall retail experience.

The watchdog claimed that the deal would have resulted in a “substantial lessening of competition” at both a national and local level for people shopping in supermarkets.

Stuart McIntosh, chairman of the CMA inquiry group, said: “It’s our responsibility to protect the millions of people who shop at Sainsbury’s and Asda every week.

“Following our in-depth investigation, we have found this deal would lead to increased prices, reduced quality and choice of products, or a poorer shopping experience for all of their UK shoppers.

“We have concluded that there is no effective way of addressing our concerns, other than to block the merger.”

Sainsbury’s boss Mike Coupe said that the decision effectively takes £1 billion out of customers’ pockets.

Prior to Thursday’s decision, Sainsbury’s and Walmart-owned Asda had offered to sell up to 150 stores as part of efforts to address competition concerns, and claimed that shoppers would be deprived of lower prices should it be blocked.

(Image: Sainsbury’s/PA)

The duo had pledged to make a number of post-merger commitments, had the deal been approved. It included investing £1 billion a year in lowering prices by the third year of the deal completing, equating to a 10% cut on everyday items.

Mr Coupe said on Thursday: “The specific reason for wanting to merge was to lower prices for customers. The CMA’s conclusion that we would increase prices post-merger ignores the dynamic and highly competitive nature of the UK grocery market. The CMA is today effectively taking £1 billion out of customers’ pockets.”

Sainsbury’s, Walmart and Asda have now mutually agreed to terminate the transaction.

A merger between the duo, the UK’s number two and three supermarkets, would have created a supermarket titan bigger than Tesco with revenues of £51 billion and a network of 2,800 Sainsbury’s, Asda and Argos stores.

But fears had been expressed that suppliers could get squeezed as a result, with the tie-up giving the merged entity increased buying power.

The move to reject the tie-up marks the first major decision the CMA has made since the appointment of former Tory MP Andrew Tyrie as chairman.

Best known for his role as head of the influential Treasury Select Committee, Mr Tyrie gained a reputation as an effective inquisitor of corporate figures.

It remains unclear where the duo go from here, but it is understood that Walmart will continue to look to sell Asda to another buyer.

Walmart chief executive Judith McKenna said: “While we’re disappointed by the CMA’s final report and conclusions, our focus now is continuing to position Asda as a strong UK retailer delivering for customers. Walmart will ensure Asda has the resources it needs to achieve that.”

Roger Burnley, the Asda boss, said that he is “disappointed” in the CMA’s decision.