Brexit is likely to have a massive impact on the UK cigarette market since the UK is now completely reliant on cigarette imports from Europe, and new tariffs are likely to be introduced between the UK and EU.
The average pack price is forecast to increase by more than £3, from £9.60 to £12.74. This is based on estimates from the Organisation for Economic Co-operation and Development which presume the UK will introduce tariffs of 70% on cigarettes coming into the UK (in line with World Trade Organisation guidelines).
By 2021, the UK cigarette market will have fallen by 21% in volume terms, but will be more vulnerable to tariff increases as all of these cigarettes will now need to be imported. Of the last two producers remaining in the market, Imperial Tobacco closed its Nottingham factory during 2016 and Japan Tobacco International shut its operations in Northern Ireland during 2017. The number of imports from will likely continue to rise over the next few years as stores from domestically produced cigarettes run out.
Furthermore, all of the UK’s top six current import sources of cigarettes are EU countries; Poland, Germany, Portugal, the Czech Republic, Romania and the Netherlands. All of the top five smoking tobacco import countries are also in the EU, with the Netherlands top. Both markets are therefore extremely sensitive to changes in tariff levels with the EU.
As well as the increase in prices, UK consumers on flights to and from the EU will be likely to see a large reduction in the amount of cigarettes they can bring through customs. The new limit is expected to be somewhere around 200 cigarettes instead of 800, with this translating into similar amounts of other tobacco products, which will make it even more difficult for UK consumers to find cheaper options.
However, the return of duty free tobacco for UK travellers going to and from the EU will benefit retailers involved in the UK duty free market, especially if prices continue to rise with the introduction of tariffs on imports from the EU.