Must read: Compass, Centrica, UK borrowing, food inflation

GLOBAL MARKETS

The FTSE 100 has opened flat, while the DAX and CAC 40 are under pressure. Compass Group (LSE:CPG) is the top gainer on the UK blue-chip index after upgrading its full-year profit guidance. Centrica (LSE:CNA) is another big winner after agreeing to buy a 15% stake in the Sizewell C nuclear plant, which has been given the green light. 

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In other corporate news, AstraZeneca (LSE:AZN) has announced plans to invest $50 billion (£37 billion) by 2030 as part of a big expansion into the United States. The drug giant is looking to move swiftly before Trump imposes any punitive tariffs on the pharma sector. 

In Asia, Japanese markets reopened after yesterday’s holiday reacting to the weekend’s election result with the Nikkei slightly lower. 

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US futures are pointing to a flat open after the S&P 500 hit another record close. Gold is trading around five-week highs, while oil is down for a third straight session. Investors continue to focus on earnings season, the looming 1 August tariff deadline and central banks, with Fed chair Jay Powell and Bank of England governor Andrew Bailey both speaking today.

UK PUBLIC SECTOR NET BORROWING

According to the Office for National Statistics (ONS), UK public sector net borrowing in June excluding banks exceeded expectations for £16.5 billion, hitting £20.7 billion, £6.6 billion higher than June 2024 and the second-highest since monthly records began in 1993. The interest payable on central government debt hit £16.4 billion, more than doubling versus June last year. Borrowing in the financial year to June was £57.8 billion, £7.5 billion higher than the same three-month period in 2024. UK bond yields are rising on the back of the data. 

In June, the public sector had to borrow £20.7 billion to cover the shortfall created by the amount that its spending exceeded taxes. And it is paying more to service those debts - interest on its debts has gone up on the back of higher inflation, specifically the Retail Price Index which impacts how much interest is paid on index-linked gilts. This more than offset the increase to the government’s tax receipts during the period, which went up partly thanks to higher national insurance contributions. 

These figures put further pressure on Chancellor Rachel Reeves ahead of her Autumn Budget when it looks increasingly likely that taxes will have to go up. She’s already under pressure after policy U-turns and a slew of disappointing economic data including GDP, inflation and unemployment.

KANTAR GROCERY INFLATION 

According to Kantar, UK grocery inflation hit 5.2% in the four weeks to 13 July. In the 12 weeks to 13 July, Ocado Group (LSE:OCDO), Aldi UK and Tesco (LSE:TSCO) enjoyed strong sales growth of 11.7%, 6.3% and 7.1% respectively. However, Asda continues to struggle, with sales down 3%. 

Grocery inflation jumped considerably to 5.2% in July up from 4.7% in June and 4.1% in May. Supermarkets have been dealing with higher costs from national insurance and minimum wage increases, which are being passed on to consumers in terms of higher prices on the shelves.

Food price inflation has come through in recent months as a key driver of higher official ONS inflation data. Food prices have been rising for three straight months, piling on additional cost-of-living pressures to households. And Kantar’s data this morning suggests food price inflation will continue to push up official prices next month. Shoppers are switching to own-brand products to save costs amid the heightened price sensitivity. 

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There is a buzz around Ocado among investors at the moment with Kantar’s impressive sales growth data providing further positive evidence. Shares have been performing very well over the last month, partly thanks to a strong first-half earnings report.