The Telegraph

Pound falls after surprise drop in UK inflation to 2.6pc

Tom Rees
Updated
UK inflation is expected to remain at 2.9pc
UK inflation is expected to remain at 2.9pc

Market report

British American Tobacco and Imperial Brands slumped on a stumbling wider market as separate strategies by the British and Indian governments to stub out smoking weighed on the cigarette makers. 

Exposed to the Indian tobacco market through its stake in conglomerate ITC, investors dumped BAT as the government increased levies on tobacco products by as much as 10pc.

The company’s heavy weighting on the FTSE 100 dragged down the index, its shares shedding 68p at £52.37. “ITC accounts for 12.5pc of BAT’s market capitalisation, implying a reduction of around 1.5pc for BAT’s share price”, argued RBC Capital Markets analyst Mirco Badocco.

Meanwhile, the unveiling of the UK’s new Tobacco Control Plan, which sets out to create a smoke-free generation, sent domestically exposed Imperial sliding 16.5p to £34.26.

Owen Bennett, an analyst at Jefferies, said that the targets in the report will raise concerns that pressures on the UK tobacco industry will persist with the government targeting a 12pc smoking rate in the population by the end of 2022.

Imperial and Japan Tobacco are most exposed to the UK government’s efforts with both deriving around 15pc of their EBIT from the British market, the broker added.

“Such targets suggest further aggressive anti-smoking measures in the years ahead,” Mr Bennett said. 

UK airliners slumped due to a read across from a Lufthansa sell-off after the German airline told shareholders to expect a tougher second half to the year as fare pressures escalate.

British Airways-owner IAG dipped 2.5p to 621p while easyJet reversed Monday’s gains to close 18p lower at £14.13. 

British Land finished among the top performers, advancing 19p to 623p, after launching a £300m share buyback scheme while Royal Mail Group recovered 12.3p to 411.1p after reporting a general election-related revenues boost in its first quarter.

However, RBC Capital Markets warned clients that Royal Mail’s increasing reliance on its parcel division could face headwinds from a weakening economic outlook.

Mining shares retreated from Monday’s highs to weigh on the FTSE 100, which closed 13.91 points lower at 7390.22 with the pound’s inflation-inspired slump mitigating losses.

On the mid-cap FTSE 250 index, Melrose tumbled 7.5p to 233p after Exane BNP Paribas took the manufacturing-focused investment company off its “outperform” list. 

Security services firm NCC Group jumped 15.25p to 185p, a 9pc rise, after Jefferies reiterated its “buy” rating for the company, saying that “the new team has a credible recovery plan” and that the “worst is likely past” for  the company which posted a £55.3m pre-tax loss in its full-year results yesterday.

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