Market report: Central bank focus, UK nuclear energised and food inflation warnings

Susannah Streeter, head of money and markets, Hargreaves Lansdown:  “There’s a wait and see mood at the start of the week as investors eye key central bank meetings and assess the potential path of interest rate cuts. Warnings about higher food prices coming in the UK are likely to cause fresh worries about how long borrowers will have to wait until Bank of England policymakers vote for another cut. They are set to leave the base rate unchanged on Thursday and aren’t expected to make a move until next Spring. The Food and Drink Federation is forecasting food inflation could reach 5.7% by the end of December and still be running at 3.1% by the end of 2026. Higher employer and packaging taxes are being blamed for increasing costs for companies, which they can no longer absorb. Wednesday’s inflation snapshot is expected to show that the Consumer Prices Index has crept up again, further away from the Bank’s 2% target, making it even more likely that borrowing costs will stay elevated for longer. However, the Fed is expected to cut interest rates on Wednesday. Even though inflation is still sticky in the US, the darkening outlook for the jobs market indicates more disinflationary pressures are brewing. As further cuts are forecast, it’s been keeping optimism alive on equity markets, with stocks on Wall Street set for a further rebound.

Fresh from disappointment about stalling pharmaceutical investment and a decision by Merck to pull funding from the UK, there is a bit of a rosier outlook for other sectors at the start of the week. As a red-carpet welcome is being rolled out for Donald Trump it’s being accompanied by fanfare about US companies investing in the UK financial and energy sectors.  At the weekend, US investments in financial services, totaling £1.25bn were announced from firms including PayPal, Bank of America and Citi Bank which will create 1,800 jobs.

There’s already a river of capital primed to move into the nuclear sector, and it looks set to trickle into British projects, channelled by a new agreement being unveiled this week – the Atlantic Partnership for Advanced Nuclear Energy. The plan is to cut more regulatory red tape, making it easier for companies to build new power stations and strike new commercial transatlantic partnerships. Projects focused on the rolling out of small modular reactors will be the first to benefit. Centrica’s shares have moved higher after the news that it will join forces with US firm X-energy to build up to 12 SMRs in Hartlepool, which could create up to 2.500 jobs in the region. Rolls Royce is ahead in small modular reactor space, but it’s clear that there’s big opportunity ahead for multiple players.

The need to build up energy security is partly behind the big drive into nuclear around the world, as well as looming net zero targets. It’s come into sharp focus following Russia’s invasion of Ukraine, and the reduction of the reliance on its energy sector. Moscow’s actions are still causing a stir on energy markets, with oil prices creeping higher after it intensified attacks on Ukraine. It’s prompted renewed calls by President Trump for the EU to impose tariffs on China and India, big buyers of Russian oil. It’s part of attempts to put a bigger chokehold on Russia’s sales, put a dent in its war chest and push Moscow towards the negotiating table.”