Europe's biggest defence contractor BAE Systems warned yesterday it expected earnings this year to drop by up to 10 per cent as a result of US spending cuts, with conditions still difficult despite a recent budget deal in Congress.

The British group, which had announced on Wednesday that it had at last agreed a price increase on its sale of Eurofighter Typhoon jets to Saudi Arabia, saw its shares suffer their biggest one-day percentage fall since 2008.

They fell 11.1 per cent in early trading to 388.1p, wiping £1.5 billion off the firm’s market value.

“The storms of US defence cuts . . . have passed, but their shadows linger in full-year 2014,” said Jefferies analyst Sandy Morris, adding that BAE EPS expectations were 4 to 5 per cent lower than Jefferies’ forecast of 40.8p. – (Reuters)