Online grocer Ocado saw its sales grow in a market gripped by a fierce supermarket price war.

It posted a better-than-expected 15.3 per cent hike in gross retail sales to £252 million in the 12 weeks to August 9 compared with a year ago, as trading showed steady progress. Shares lifted by almost five per cent.

However, Ocado's sales growth has eased back from the 16.2 per cent rise seen in the previous three months.

Ocado also said its average basket size fell 1.1 per cent to £110.46 compared to a year ago - its sixth quarterly fall in a row.

Prices are falling year-on-year in the grocery industry as the Big Four players slash prices to compete with discounters such as Aldi and Lidl.

Ocado chief executive Tim Steiner said: "We are pleased with the continued steady growth of our business in a retail environment that remains tough."

Mr Steiner said the business would continue to improve its IT infrastructure, adding: "Notwithstanding the competitive nature of the marketplace, we expect to continue growing slightly ahead of the online grocery market."

But analysts at HSBC said: "The ongoing price competition in the wider grocery sector in the UK is having an impact on Ocado especially on its Low Price Promise - cheaper than Tesco - matched products."

Shore Capital experts added: "The company continues to suffer basket erosion whilst the brand only marginally out-performs the UK online grocery market."

Ocado said earlier in the year it expected to sign an international tie-up before the end of the year, but there was no announcement of a deal with the trading update.

There has also been speculation over the future of Ocado's £170m contract with Morrisons as new chief executive David Potts seeks to turn around the supermarket's fortunes.

Last week Mr Potts said he would sell 140 convenience stores and close 11 underperforming supermarkets. But when presenting the supermarket's half-year results, he said the tie-up with Ocado had made a "good start" in what was a growth market.

It was reported last month that US-based online shopping giant Amazon was gearing up to launch its Amazon Fresh food operation in the crowded UK grocery market in what would add to the competitive pressure on players such as Ocado.

Brokers at HSBC said that Amazon has a history of sustaining losses while it builds new operations.

HSBC added: "Our view is that Ocado appears like the most vulnerable player particularly if Amazon targets the lucrative, densely populated London market."