The Office of Fair Trading (OFT) has issued an unprecedented apology to Wm Morrison for wrongly suggesting that Britain's fourth-largest supermarket group was guilty of fixing prices for butter and cheese five years ago.

The competition watchdog agreed today to pay £100,000 to settle a defamation case brought by the retailer over "serious errors" published in a press release last September.

The OFT has also agreed to pay Morrison's costs in relation to the defamation case and a judicial review the supermarket launched in the wake of the OFT's strongly worded press release, which accused supermarkets of ripping off shoppers to the tune of £270 million.

The OFT said in a statement today that its September release incorrectly stated that Morrison was the subject of a provisional finding of infringement in relation to the supply of butter and cheese in 2002 and 2003.

It also said that the supermarket had previously been warned by the OFT against anticompetitive behaviour, which was not the case.

In fact, the only allegation relating to Morrison involved liquid milk products in 2002.

The watchdog said today: “The OFT regrets that the press release contained these serious errors, and wishes to apologise sincerely to Morrisons for their publication.”

The apology from the OFT was made amid serious concerns over the tactics adopted by the OFT since the appointment of John Fingleton as chief executive at the end of 2005.

Leading businessmen have accused the regulator of pursuing a populist agenda.

Fines imposed by the OFT increased 76-fold last year to £237 million.

Last week the competition watchdog sent a "statement of objections" to 112 construction companies as part of its biggest investigation of cartel activity to date.

That investigation, which has been going on for the past four years, is likely to result in fines worth hundreds of millions of pounds when it is concluded next year.

The OFT reassured Wm Morrison today that it had not pre-judged the company in relation to the allegations over milk price-fixing.

The regulator said: "It wishes to reassure Morrisons that it remains entirely open-minded about its provisional findings pending its consideration of representations from Morrisons and the totality of the evidence."

In a statement the supermarket group said it was pleased to confirm that the £100,000 received in settlement of its defamation action would be donated to its charity of the year, a partnership between Help the Aged and Childline.

The milk investigation is continuing and is expected to reach a conclusion towards the end of the year.

The inquiry stunned supermarket executives, who at the time of the alleged price-fixing in 2002 were under immense pressure from the Government and lobby groups to raise milk prices to help the farmers, some of whom blockaded supermarket depots.

Nevertheless, late last year the majority of the retailers and processors embroiled in the OFT case admitted liability, despite arguing privately that they were being punished for doing the right thing.

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