Must read: French politics, AB Foods, Kingfisher, Bunzl, UK inflation

GLOBAL MARKETS 

Risk-off mood grips European markets following declines overnight in Asia, with the Nikkei ending at a more than two-week low while US futures are also pointing lower. The CAC 40 is leading the losses, down around 2% amid political instability in France after its three main opposition parties said they wouldn’t back Prime Minister Francois Bayrou’s confidence vote on 8 September on his plans for budget cuts. 

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French instability puts further pressure on already uneasy global markets after Donald Trump said he is firing Federal Reserve Governor Lisa Cook over alleged mortgage fraud. Although Cook said she will not resign, this still raises concerns about the Fed’s ability to set interest rates independently from political interference. 

In terms of individual movers in the UK, Associated British Foods (LSE:ABF) shares have slumped to the bottom of the FTSE 100 after Deutsche Bank cut the stock to a sell from a hold. Kingfisher (LSE:KGF) is also down sharply after the broker reduced it to a hold from a buy. Meanwhile, Bunzl (LSE:BNZL) has soared to the top of the UK blue-chip index after restarting its share buyback programme. It also said it expects an improved performance in the second half of the year.

BRC UK SHOP PRICE INFLATION 

According to the British Retail Consortium, UK shop prices rose by 0.9% in August year-on-year, the highest level since March 2024. Food price inflation was particularly steep rising by 4.2%, an 18-month high with price increases for staples like butter and eggs. 

It echoes official Office for National Statistics (ONS) data which revealed that UK CPI inflation hit 3.8% in July, much higher than the Bank of England’s 2% target, with food prices partly responsible for the increase. 

Although inflation has retreated significantly from the Covid-era peak of 11% in 2022, price pressures have resurfaced lately with the Bank of England projecting that the consumer price index (CPI) will rise further to 4%. It also expects that it will only return to the 2% target by the second quarter of 2027. 

While the Bank of England is expected to cut rates again by year end, it is becoming less certain, and there are growing concerns about the risk of a higher-for-longer interest rate environment. Policymakers are weighing up the prospect of higher prices of food and other goods versus downside pressure from a weakening labour market and sluggish growth.