The battle for the cheapest mobile phone contract to beat the credit crunch is well and truly on. Until recently it was phone company 3 that could boast the cheapest contract on the market with its £9-per-month offering. But Virgin has just undercut 3 by 50p to provide customers with an unbeatable £8.50-a-month tariff.

Virgin has become known for its ultra-cheap deals of late, such as its 30p-per-day offer for mobile browsing for anyone with a Virgin handset. But if you suspect this contract can't provide customers with a decent service for their cash, you are wrong. Because for your £8.50 a month, you will be receiving 100 minutes to any network as well as 100 free texts.

However, there is a slight catch in that only a handful of handsets will be available at this low price. But these are not bottom-end handsets that Virgin is simply hoping to offload onto its lowest-paying customers. Instead, the LG KC550, the Nokia 3120 and the Samsung G600 are among the handsets included in the deal. The LG and the Samsung handsets both include decent 5MP digital cameras which makes for a very good offer indeed.

Graeme Oxby, managing director of Virgin Mobile, said that “as customers are tightening their purse strings” this deal “will allow people to stay in touch without the added worry of a hefty phone bill.”

Anyone wanting to take advantage of this moneysaving mobile offer will have to sign up to an 18-month contract. Somehow that doesn't seem too much to ask for such a low price deal!