Tesco will slash costs and sell assets to fund lower prices and mend its finances, Britain’s biggest retailer said, as its new boss set out his plan to fight back from years of market share losses and an accounting scandal.

Dave Lewis, poached from Unilever to rescue Tesco from the biggest crisis in its 96-year history, said he would halve capital spending, scrap the dividend, consider the sale of the Dunnhumby data gathering business, consolidate head office locations and shut the final salary pension scheme to save cash.

He also named Matt Davies, credited with turning around bicycles-to-car parts retailer Halfords, as the head of Tesco’s main UK business and said the company would drop prices by an average 25 per cent on around 380 branded goods to narrow the gap with fast-growing discount grocers Aldi and Lidl as well as Wal-Mart’s Asda. In response to Tesco’s plans, rating agency Moody’s downgraded the company’s short-term ratings to ‘Not Prime’ or junk status.

“We have downgraded Tesco’s ratings because of our expectation that the structural changes in the UK grocery retail market will continue to challenge the company’s operating performance,” said senior analyst and lead analyst for Tesco Sven Reinke. Rating agency Fitch said it was maintaining its BBB- rating, one notch above junk.

Tesco shares rose as much as 15 per cent in their biggest one-day gain since 1988, as shareholders expressed relief it had not asked them for cash and also took heart from a smaller-than-expected drop in Christmas sales.

“The direction of travel and the tone is much more in line with what we think is in the best interests of long-term shareholders,” said Nick Kirrage, a fund manager at Tesco’s eighth-biggest investor, Schroders.

Lewis stressed that Tesco’s liquidity and funding were “very secure”.