Category: Top Story

Wall Street looked set for a slightly firmer start on Thursday as a steep decline in crude oil prices helped improve investor sentiment following Wednesday’s mixed session. U.S. crude futures dropped around 2.3%, easing some of the inflation concerns created by the recent energy rally, although a sharp premarket decline in Cisco Systems (NASDAQ:CSCO) provided a counterweight to the more positive backdrop.

Oil sell-off offers relief to equity markets

The sharp reversal in crude prices emerged as one of the main drivers of early market sentiment.

Concerns about the global demand outlook pushed U.S. crude futures down approximately 2.3%, with traders focusing more heavily on potential consumption weakness than supply threats arising from the continuing Middle East conflict.

Lower energy prices could provide some relief for investors after the recent surge in crude raised concerns that another inflationary shock could complicate the Federal Reserve’s policy outlook.

A sustained decline in oil would potentially reduce pressure on consumer and business costs, making developments in the energy market particularly important for expectations surrounding inflation and interest rates.

Cisco tumbles after quarterly update

The positive influence from falling oil prices was partly offset by weakness in Cisco Systems (NASDAQ:CSCO).

Shares of the networking company plunged more than 7% in premarket trading even though Cisco delivered better-than-expected quarterly results and issued an upbeat outlook.

The negative reaction suggested investors had set a high bar ahead of the announcement following the strong performance of technology and artificial intelligence-related stocks.

Cisco’s decline could limit the broader technology sector’s contribution to Thursday’s market gains despite continued optimism surrounding AI infrastructure spending.

Technology stocks lifted Wall Street on Wednesday

The Nasdaq and S&P 500 both finished higher during Wednesday’s session, although gains moderated after a stronger start.

The Nasdaq advanced 143.04 points, or 0.5%, to 26,588.49, supported by strength across several technology-related industries.

The S&P 500 gained 20.30 points, or 0.3%, to finish at 7,748.50.

The Dow Jones Industrial Average was comparatively subdued, spending much of the session close to unchanged before ending 21.58 points lower, or less than 0.1%, at 53,770.27.

The positive closes for the Nasdaq and S&P 500 helped offset some of the weakness recorded earlier in the week.

CPI report calms some inflation concerns

Wednesday’s initial advance followed the release of U.S. consumer inflation data that broadly matched economists’ expectations.

Consumer prices increased 0.1% in July following a 0.4% decline in June, according to the Labor Department.

Core prices, excluding food and energy, rose 0.2% after showing no change during the previous month.

Annual headline inflation eased to 3.4% from 3.5%, while the annual core rate declined to 2.5% from 2.6%.

The readings provided some reassurance that underlying inflation had not accelerated, helping reduce immediate concerns about the outlook for U.S. interest rates.

However, investors remain sensitive to the possibility that another sustained rise in energy costs could reverse some of that progress.

AI enthusiasm drives hardware stocks to new highs

Artificial intelligence-related stocks provided another important source of support for Wall Street during Wednesday’s session.

CoreWeave (NASDAQ:CRWV) and Super Micro Computer (NASDAQ:SMCI) attracted buying interest following positive reactions to their quarterly results and guidance.

Computer hardware stocks were particularly strong, with Super Micro helping extend the sector’s recent rally.

The NYSE Arca Computer Hardware Index surged 5.5% and closed at a record high.

Networking and semiconductor shares also advanced substantially, strengthening the technology-heavy Nasdaq.

Geopolitical risks continue to influence oil and inflation outlook

Despite the stronger performance of technology stocks and relatively encouraging inflation figures, geopolitical uncertainty remained an important restraint on market sentiment.

Recent tensions in the Middle East have contributed to significant volatility in crude prices and renewed concerns about potential disruptions to global energy supplies.

International mediators continue trying to restart negotiations between the U.S. and Iran, although public comments from both sides have suggested that a near-term resolution remains uncertain.

The sharp decline in crude prices on Thursday has temporarily shifted investor attention towards demand concerns, but any escalation in the conflict could quickly return supply risks to the forefront.

Investors weigh lower oil against corporate earnings

Transportation, gold and brokerage stocks were among the other areas recording gains on Wednesday, while housing and software shares moved notably lower.

Ahead of Thursday’s opening bell, investors are balancing the potential economic benefit of cheaper oil against mixed reactions to corporate earnings.

The 2.3% decline in U.S. crude futures could provide support if it helps ease inflation expectations, while Cisco’s sharp premarket drop highlights the risk posed by elevated expectations across the technology sector.

Oil prices, Middle East developments and incoming economic data are therefore likely to remain important drivers of Wall Street sentiment as investors reassess the outlook for inflation, growth and Federal Reserve policy.

European equities traded mostly higher on Thursday as falling oil prices and softer U.S. inflation data supported risk appetite. Expectations of weaker global energy demand pushed crude prices lower, while the latest U.S. inflation figures reduced concerns that the Federal Reserve could raise interest rates in the near term. The U.K. market underperformed its continental peers, however, as energy stocks declined and investors assessed slower British economic growth.

UK economy slows in the second quarter

Sterling came under pressure following official figures showing that economic growth in the U.K. moderated during the second quarter.

Real gross domestic product expanded 0.4% quarter on quarter, according to the Office for National Statistics, slowing from growth of 0.6% during the opening three months of the year. The quarterly figure was in line with economists’ expectations.

On an annual basis, the economy grew 1.2%, slightly stronger than the 1.1% expansion forecast by economists.

The slowdown nevertheless weighed on the pound as investors considered the implications for the outlook for the British economy.

STOXX 600 advances while FTSE 100 falls

The pan-European STOXX 600 Index gained around 0.2%, recovering after declining 0.2% on Wednesday.

Germany’s DAX advanced approximately 0.4%, while France’s CAC 40 added 0.1%.

The U.K.’s FTSE 100 moved in the opposite direction, falling around 0.3% as weakness among major energy companies weighed on the index.

Lower oil prices were a particular drag on London’s heavyweight energy sector, offsetting gains elsewhere in the market.

Costain and Rank Group rally after results

Costain Group (LSE:COST) shares moved sharply higher after the British infrastructure company delivered strong first-half results and reaffirmed its guidance for the full year.

Rank Group (LSE:RNK), which owns Grosvenor Casinos and Mecca Bingo, also recorded a substantial gain after reporting a 21% increase in underlying profit for the financial year ended June 30, 2026.

The results provided further company-specific support to parts of the U.K. market despite the broader decline in the FTSE 100.

Sixt, Thyssenkrupp and Maersk gain

In continental Europe, Sixt (TG:A46Z70) shares climbed after the German car rental company reported record revenue for the first half.

Thyssenkrupp (TG:TKA) also advanced after the steel and industrial technology group increased the lower end of its 2026 profit guidance.

Maersk (TG:DP4A) was another notable riser after the Danish shipping company raised its full-year outlook following a sharp increase in second-quarter profit.

Pandora (LSE:0FND) shares also strengthened after the jewellery group upgraded its 2026 expectations for organic growth and profit margin.

BP and Shell retreat as oil prices weaken

Energy stocks were among the main laggards as crude oil prices pulled back from their recent highs.

BP Plc (LSE:BP.) and Shell (LSE:SHEL) both declined as investors reacted to expectations of weaker global oil demand during the year.

The retreat in crude prices followed a recent rally and added pressure to the energy-heavy FTSE 100.

Antofagasta falls after mixed first-half update

Antofagasta (LSE:ANTO) shares also moved sharply lower following a mixed set of first-half results from the Chilean copper producer.

The company reported a substantial increase in first-half profit, benefiting from supportive commodity-market conditions.

However, Antofagasta reduced its copper production forecast for 2026, overshadowing the stronger earnings performance and weighing on the shares.

Overall, European markets remained supported by easing concerns over U.S. monetary tightening and lower energy prices, although weaker oil stocks and slower U.K. economic growth left London trailing the major continental indices.

U.S. equity futures edged higher on Thursday as traders turned their attention to another key inflation release and continued to assess results from major technology companies. Cisco Systems (NASDAQ:CSCO) slipped after the closing bell despite reporting a sharp increase in profit and revenue supported by artificial intelligence-related demand, while Applied Materials (NASDAQ:AMAT) is set to deliver its latest results later in the day. Markets are also watching the escalating dispute between Washington and Tehran over the Strait of Hormuz, with both sides claiming control of the crucial oil transit route.

U.S. futures point to a firmer open

Futures tied to Wall Street’s major benchmarks moved modestly higher ahead of Thursday’s session as investors balanced easing consumer inflation against another busy day for corporate earnings.

At 02:58 ET (06:58 GMT), Dow futures were higher by 26 points, or 0.1%. S&P 500 futures increased by 6 points, also 0.1%, while Nasdaq 100 futures climbed 29 points, equivalent to 0.1%.

U.S. equities finished Wednesday on a mixed note. The S&P 500 and Nasdaq Composite gained ground, while the Dow Jones Industrial Average slipped slightly.

Markets were supported by July consumer inflation figures showing a modest slowdown in the annual rate, broadly in line with economists’ forecasts. Although inflation remains high in absolute terms, the data strengthened expectations that the Federal Reserve will keep borrowing costs unchanged when policymakers meet in September rather than opt for another rate increase.

Treasury yields declined following the release, while the dollar weakened against a group of major currencies.

Cisco delivers strong quarter as AI orders accelerate

Cisco Systems shares came under pressure in extended-hours trading even though the networking technology group reported another strong quarter.

The muted share-price reaction reflected the high expectations already built into the stock, according to analysts cited by Reuters. Cisco shares have gained more than 60% this year as investors increasingly view the company as a beneficiary of expanding spending on artificial intelligence infrastructure.

CEO Chuck Robbins told the Wall Street Journal that demand across Cisco’s product portfolio was running at levels the company had not experienced in three decades. Large technology companies have placed billions of dollars of orders as they continue to invest heavily in AI computing and networking capacity.

Robbins described the AI boom as the “fastest-moving technology transition” Cisco has ever seen, according to the WSJ.

The company reported July-quarter net profit of $3.86 billion, or $0.97 per share, while revenue rose to $17.25 billion from $14.67 billion in the prior-year period. The top-line result came in above Wall Street forecasts.

Cisco also issued a stronger-than-expected revenue outlook for fiscal 2027, forecasting between $72.2 billion and $73.4 billion. Orders for AI infrastructure from hyperscale customers are projected at around $7.5 billion.

Applied Materials next in the earnings spotlight

Investors will also be watching Applied Materials, with the semiconductor equipment manufacturer due to report after Thursday’s market close.

Bloomberg consensus forecasts point to adjusted fiscal third-quarter earnings of $3.42 per share on net sales of $9.02 billion.

For the current quarter, analysts are looking for guidance of approximately $9.62 billion in sales and adjusted earnings of $3.72 per share.

The continuing expansion of artificial intelligence infrastructure has supported demand for advanced semiconductor manufacturing equipment. More powerful AI processors require greater quantities of silicon wafers and increasingly sophisticated production technologies, creating favourable conditions for suppliers such as Applied Materials.

In May, the company forecast more than 30% growth in its semiconductor equipment business during 2026, alongside an increase of more than 50% in packaging revenue. CEO Gary Dickerson said Applied Materials sees “an exceptionally strong foundation for sustained multi-year revenue and profit growth.”

Hormuz dispute adds to geopolitical uncertainty

Geopolitical developments remain another important driver for markets as the conflict in the Middle East continues to threaten regional energy flows.

On Thursday, the commander of an Iranian paramilitary group said the Strait of Hormuz was “under Iran’s control,” according to Al Jazeera, directly contradicting U.S. President Donald Trump’s claim a day earlier that Washington controlled the waterway.

Diplomatic efforts between the U.S. and Iran have stalled once again, with the two governments offering opposing accounts of conditions around the strait. The route carried roughly one-fifth of global oil supplies before the conflict began in late February.

An Iranian source told Reuters that talks aimed at restoring a peace framework signed in June had failed to make progress as continued fighting undermined the agreement.

Brent crude futures nevertheless edged lower on Thursday as concerns surrounding the outlook for global oil demand offset some of the fears about restricted supply.

Markets await July producer inflation

The next major macroeconomic focus will be July’s U.S. producer price index, which is expected to provide another indication of inflationary pressures ahead of the Federal Reserve’s September policy meeting.

Annual PPI inflation is forecast to ease to 4.9% from 5.5%, while the monthly reading is expected to rise by 0.2% after declining 0.3% in June.

Investors will be assessing not only the impact of volatile energy prices associated with the Iran conflict but also whether the rapid build-out of AI infrastructure is beginning to create broader cost pressures across the economy.

The combination of CPI and PPI data will also allow economists to update their expectations for the upcoming core personal consumption expenditures price index, a closely watched inflation gauge used by the Federal Reserve.

UK markets open mixed as Savills and Antofagasta report stronger earnings, while US stocks advance and Brent crude moves lower.

Market Overview

The FTSE 100 opened broadly unchanged at 10,833.58, up less than 0.01 per cent from its previous close, as investors assessed cooling UK economic growth and continuing tensions around the Strait of Hormuz. The Euronext 100 was also effectively flat at 1,973.14, while Germany’s DAX gained 0.34 per cent to 26,421.06. Overnight in the US, the Nasdaq closed higher at 26,588.49 and the S&P 500 advanced to 7,748.50, with an on-target US inflation reading easing concerns over further near-term Federal Reserve tightening.

Commodity markets were mixed, with copper, Brent crude and natural gas moving lower while gold edged higher. Oil sentiment reflected weaker global demand forecasts alongside continuing uncertainty over the Strait of Hormuz. Against sterling, the US dollar weakened marginally, while the Swiss franc, Japanese yen and Australian dollar strengthened slightly and the euro was unchanged. Bitcoin was also up against sterling.

Market Numbers

FTSE 100: Up (+0.001%), 10,833.58
Euronext 100: Up (+0.01%), 1,973.14
DAX: Up (+0.34%), 26,421.06
NASDAQ: Up, 26,588.49
S&P 500: Up, 7,748.50

In the Headlines

Earnings rise – Savills (LSE:SVS)
Global property services group Savills reported stronger first-half earnings as its performance improved and the acquisition of Eastdil Secured expanded its global platform. The transaction strengthens the group’s position across international real estate advisory and capital markets services.

Copper prices lift earnings – Antofagasta (LSE:ANTO)
Copper miner Antofagasta reported an 18 per cent increase in first-half revenue to $4.48 billion and a 27 per cent rise in EBITDA to $2.84 billion, supported by stronger commodity prices and cost discipline. Cash generation improved significantly, although severe weather affected production at Los Pelambres, while the group maintained its full-year copper production guidance.

Currencies (vs GBP)

USD: Down (-0.00%), $1.3498
CHF: Up (+0.01%), Fr.1.0976
EUR: Unchanged (0.00%), €1.1708
JPY: Up (+0.01%), ¥215.0645
AUD: Up (+0.01%), $1.9107
Bitcoin (BTC/GBP): Up (0.00%), £47,342.92

Commodities

Copper: Down
Gold: Up
Brent Crude: Down
Natural Gas: Down

European equities moved higher on Thursday as an in-line U.S. inflation report strengthened expectations that the Federal Reserve could leave interest rates unchanged at its September meeting.

The pan-European Stoxx Europe 600 Index gained 0.2%, putting the benchmark back on course towards record highs. Major regional markets also advanced, with Germany’s DAX and France’s CAC 40 both rising 0.3%.

London outperformed, with the FTSE 100 climbing 0.6% as investors also responded positively to fresh UK economic growth figures.

U.S. CPI Reduces Expectations for September Rate Hike

Wednesday’s U.S. Consumer Price Index report provided reassurance for global markets after headline inflation increased 0.1% month-on-month in July, while core inflation stood at 2.5% year-on-year.

The figures broadly matched expectations and followed last week’s unexpected contraction in U.S. nonfarm payrolls. Together, the data reduced concerns that the Federal Reserve would need to tighten monetary policy again in the immediate future.

Money markets responded by lowering the implied probability of a 25-basis-point interest rate increase at the Fed’s September 16 meeting to around 40%, compared with almost 67% a week earlier.

The decline in expectations for higher borrowing costs provided additional support for equities and reduced one of the principal sources of uncertainty facing global markets.

“The US July CPI number offered up nothing in the way of a surprise,” said Sam Hill, head of market insights at Lloyd’s Bank.

“The market is likely to still view it as corroborating the deceleration seen last month, creating additional breathing space for the Fed It is hard to see a September hike on that basis. The hawks’ concerns will continue to develop, but a trigger is lacking against that mix for the moment.”

UK Economy Expands 0.4% in Second Quarter

UK economic data provided an additional boost to sentiment in London, with gross domestic product expanding 0.4% during the second quarter.

The result matched economists’ forecasts and indicated that the British economy maintained positive momentum despite elevated interest rates.

Resilience within consumer-facing services helped support the quarterly expansion, offering evidence that domestic activity continues to withstand restrictive borrowing conditions.

For the Bank of England, the figures provide further evidence that the economy remains resilient enough to allow policymakers to retain a cautious, data-dependent approach towards monetary easing without an immediate threat of recession.

The economic backdrop also provided support for domestically exposed lenders and industrial companies within the FTSE 100.

Oil Retreats but Remains Above $80

Crude prices eased from recent multi-week highs on Thursday, although oil remained above $80 a barrel as geopolitical uncertainty continued to support the market.

Investors remain focused on tensions between Washington and Tehran surrounding shipping access through the Strait of Hormuz.

Despite continuing diplomatic efforts, the United States and Iran remain divided over the conditions required for a permanent peace agreement. As a result, geopolitical risk continues to be reflected in global energy prices and freight costs.

European Economic Data Comes Into Focus

Investors are also awaiting additional economic releases from Europe later in the session.

Spain’s final July inflation figures and Eurozone industrial production data are due, providing further indications of whether disinflation and manufacturing activity are developing in line with European Central Bank expectations heading into the autumn.

The figures could influence expectations for the ECB’s next policy moves as officials balance easing inflation pressures against the health of the regional economy.

Pandora Rises While Thyssenkrupp Slips

Among individual stocks, Pandora (LSE:0FND) gained almost 3% after its second-quarter results exceeded expectations and the company raised its earnings outlook.

Thyssenkrupp (TG:TKA), meanwhile, fell 1.5% despite narrowing its 2026 guidance towards the upper end of its previous range.

European markets therefore remained supported by easing U.S. interest-rate concerns and resilient UK economic data, while geopolitical risks and upcoming European macroeconomic releases continued to shape the outlook.

UK equities moved modestly lower on Thursday as investors assessed a slowdown in British economic growth alongside continuing geopolitical uncertainty surrounding the Strait of Hormuz.

As of 03:06 ET (07:06 GMT), the FTSE 100 was down 0.10%, underperforming its major European counterparts. Germany’s DAX advanced 0.40%, while France’s CAC 40 gained 0.27%.

Sterling was broadly steady against the U.S. dollar, with GBP/USD trading near 1.3481, down around 0.10%.

UK GDP Growth Cools in Second Quarter

Preliminary figures from the Office for National Statistics showed that the UK economy expanded 0.4% during the second quarter of 2026, matching economists’ forecasts but slowing from growth of 0.6% in the opening three months of the year.

The monthly figures provided a somewhat stronger signal heading into the second half. GDP increased 0.3% in June, beating expectations for a decline.

That followed unchanged output in May, which was revised down from an earlier estimate of 0.1% growth, while April’s 0.1% contraction was left unrevised.

The stronger June performance helped offset the subdued start to the quarter, although the overall figures confirmed that the pace of UK economic expansion moderated from the first quarter.

Strait of Hormuz Tensions Keep Investors Cautious

Geopolitical developments remained another major influence on market sentiment as uncertainty surrounding the Strait of Hormuz continued.

U.S. Central Command said on Wednesday that American forces had redirected 59 commercial vessels, disabled three and boarded two as of August 12 as part of efforts to enforce a naval blockade against Iran. CENTCOM described the operation as America’s “steel wall blockade” in the Strait of Hormuz.

U.S. President Donald Trump said earlier on Wednesday that the United States had “total control” of the Strait of Hormuz and would retain it. He described the naval operation as a “wall of steel” and said Iran had no navy, air force or effective military leadership.

Meanwhile, Iranian Foreign Minister Abbas Araghchi criticised France and other Western countries over what he characterised as hypocrisy regarding human rights.

A New York Times report concerning events around last month’s NATO summit in Ankara also said Iran had obtained precise information about Trump’s location. According to the report, U.S. officials identified a surface-to-air missile threat against his aircraft, leading to the use of a decoy operation.

Gold and Oil Prices Move Lower

Precious metals weakened during Thursday’s session despite the continuing geopolitical uncertainty.

Gold futures fell 0.70% to $4,436.65 an ounce, while spot gold declined 0.65% to approximately $4,380.

Oil prices also moved lower. Brent crude slipped 0.48% to $88.55 a barrel, while WTI crude declined 0.53% to $82.83.

Energy markets remain sensitive to developments around the Strait of Hormuz given the waterway’s importance to international oil and gas shipments.

UK Round-Up

Antofagasta (LSE:ANTO) reported a 27% increase in first-half core earnings as stronger copper prices helped counter weaker production. The miner also reduced its 2026 production forecast following a shutdown at one of its operations.

Entain (LSE:ENT) exceeded expectations for first-half core profit, with strong customer engagement around the World Cup and cost-saving measures helping the gambling group absorb the impact of higher UK gaming taxes.

With domestic economic growth losing some momentum and geopolitical uncertainty remaining elevated, investors are likely to continue monitoring incoming UK data and developments in the Middle East for direction.

Warnings of a sharp acceleration in UK food inflation have so far failed to materialise, with intense supermarket competition, stronger supplier hedging and consumer resistance to higher prices helping contain the impact of rising industry costs.

Britain’s food sector warned in February that surging energy prices following U.S. and Israeli strikes on Iran could push food price inflation towards 10% by Christmas. Six months later, the direction of travel has been markedly different, with food inflation falling to its lowest level in almost two years.

UK food and non-alcoholic beverage prices increased 1.7% in the 12 months to June 2026, slowing from 2.2% in May and recording the weakest rate since August 2024.

That was comfortably below the 3.6% June rate projected by the Bank of England in April and far short of the more than 9% increase the Food and Drink Federation had anticipated by December.

Supermarket Competition Keeps a Lid on Prices

One of the biggest factors limiting food inflation has been the increasingly aggressive battle between Britain’s major grocery chains.

Tesco (LSE:TSCO), Sainsbury’s (LSE:SBRY), Asda, Morrisons, Marks & Spencer (LSE:MKS), Aldi and Lidl are competing intensely for customers, making retailers reluctant to pass the full impact of higher costs onto shoppers.

Fresh and chilled products have become particularly important battlegrounds because consumers frequently use prices in these categories when deciding where to shop. Some supermarkets have consequently accepted pressure on margins to maintain competitive shelf prices.

Branded food producers have also been cautious about demanding substantial price increases, partly because doing so could encourage consumers to switch towards cheaper supermarket own-label alternatives.

“The single biggest factor behind food inflation not progressing as strongly as we thought is the competitive intensity of the industry,” Shore Capital’s head of consumer research Clive Black said.

Worldpanel by Numerator data showed Tesco’s market share slipped during June and July for the first time since July 2023, demonstrating that even Britain’s largest supermarket is facing significant competitive pressure.

Chief executive Ken Murphy has described the UK grocery sector as an “incredibly competitive” market.

Promotions Help Consumers Manage Grocery Bills

Retailers are also relying heavily on promotions to attract and retain shoppers following years of weak improvements in living standards and an extended cost-of-living squeeze.

Nearly one-third of grocery purchases were made on promotion during the four weeks to June 14, according to Worldpanel.

A weekly pricing study from The Grocer provides another indication of the intensity of competition. Five major supermarket groups have each ranked as the cheapest retailer during at least one of the publication’s last 15 surveys.

The continued expansion of German-owned Aldi and Lidl has added further pressure, forcing traditional supermarket groups to remain competitive on everyday prices as well as promotional offers.

“There’s lots of things going on to manage cost push inflation and keep a lid on the price that the consumer sees on the shelf,” said Kunal Kothari, a fund manager at Aviva Investors, which owns shares in Tesco and Sainsbury’s.

Cost Savings Give Supermarkets More Flexibility

Behind the competition on supermarket shelves is a significant push to reduce operating expenses.

Retailers have been implementing cost-saving programmes to compensate for higher wages, taxes, regulatory expenses and other pressures, giving them greater scope to avoid passing every cost increase directly to consumers.

Tesco has generated more than £2.2 billion ($3 billion) of savings during the past four years and is targeting another £500 million this year.

Supply-chain automation has contributed to those efficiencies, while artificial intelligence is increasingly being deployed to improve product markdown decisions and reduce food waste.

These measures have allowed retailers to redirect some savings towards maintaining lower prices even as other areas of their cost bases have increased.

Suppliers Better Prepared for Commodity Volatility

Food manufacturers and suppliers have also changed their approach following the inflation shock triggered by Russia’s invasion of Ukraine.

Companies that were previously exposed to sudden increases in energy and ingredient prices are now hedging costs further in advance, reducing their vulnerability to short-term commodity market volatility.

“They’ve learnt their lessons,” Tesco’s Murphy said. “People are a lot better hedged this time round,” he added.

Lower prices for some soft commodities, including cocoa and coffee, have provided additional assistance to producers and retailers.

Morgan Stanley UK economist Bruna Skarica has also highlighted the tougher competitive environment facing Tesco this year. The supermarket had previously been able to increase prices while simultaneously gaining market share in 2023 and 2025, but that strategy has become harder to repeat in 2026.

Lower Inflation Comes at a Cost to Profits

Consumers may have avoided the food price increases previously feared, but supermarkets themselves are feeling the financial consequences.

Both Tesco and Sainsbury’s have provided unusually broad ranges for their full-year profit guidance. At the lower ends of those forecasts, earnings would decline compared with the previous year.

That highlights the trade-off facing the industry: retailers can absorb higher costs and protect market share, but doing so places pressure on margins and profitability.

The situation also raises questions over how long supermarkets can continue shielding households if operating and supply-chain expenses remain elevated.

Food Price Risks Have Not Disappeared

Food inflation has also remained relatively subdued across the euro zone, although broader UK inflation has generally been higher than in other parts of Europe. This could indicate that British supermarkets and suppliers have absorbed a larger proportion of recent cost increases rather than immediately passing them through to consumers.

For households, the trend offers some relief from broader cost-of-living pressures as Prime Minister Andy Burnham’s government places affordability among its early priorities.

However, the outlook remains uncertain. Britain’s continuing drought is emerging as a potential threat to agricultural output and food costs in 2027, while energy and commodity markets remain vulnerable to geopolitical disruption.

The experience of the past six months suggests retailers and suppliers are better equipped to manage sudden cost shocks than during the previous inflation cycle. Whether they can continue doing so without materially damaging profitability will be a key question for the remainder of the year.