Imperial's consumers are downtrading
The global tobacco giant, which holds over 45 per cent of the 44.2 billion cigarette a year UK market, said consumer downtrading "appears to have accelerated" following the increase in VAT in January.
Smokers are also rolling their own cigarettes to save money, with the UK fine cut tobacco market growing 18 per cent to 4,850 tonnes on an annualised basis.
The firm said its JPS Silver and Windsor Blue brands continued to grow in the six months to March 31, and now account for around 40 per cent of the low cost segment.
Imperial said consumers were already economising before the recession hit, driven by higher taxation, but this trend "picked up some pace" in the economic downturn.
The firm grew UK revenues 7 per cent to 448m in the half year as volumes grew and prices improved. Operating profits were also up 7 per cent to 295m.
Overall, Imperial said its loose tobacco volumes grew 9.5 per cent as it capitalised on downtrading in the European Union.
The Bristol-based company saw revenues rise 4 per cent to 3.4bn, while adjusted pre-tax profits were up 15 per cent to 1.2bn.
Chief executive Gareth Davis is set to retire on May 12 and will be replaced by chief operating officer Alison Cooper.