Perfect storm batters pound and shares
Nearly £40bn was wiped off the value of British companies yesterday as a ‘sorry cocktail’ of coronavirus and Brexit worries spooked the financial markets.
On a bleak day for savers with pensions and other investments, the FTSE 100 index fell 1.7pc while the pound sank back below $1.34 having traded above $1.36 last week.
The sell-off came as analysts warned that Britain was in the ‘middle of a perfect storm of both Covid-19 and Brexit’ as a trade deal with the EU remains elusive.
The emergence of a fast-spreading new variant of coronavirus has led to the introduction of Tier Four restrictions in london and much of South-east england that could last for months – hammering business and putting the economy on course for a double- dip recession. Numerous countries in europe and around the world have suspended travel from Britain in a bid to protect themselves from the new strain.
and a French ban on freight transport from Britain has added to chaos at ports, threatening the supply of medicines, food and even Christmas presents.
The latest developments have seen optimism over the roll- out of Covid-19 vaccines give way to fears that the crisis is far from over. economists warned that further lockdowns ‘may be the final straw for many businesses’.
Investors are also growing increasingly concerned that Britain could leave the EU on January 1 without a trade deal as talks go to the wire. Stefan Koopman, senior market economist at rabobank, said: ‘We are in the middle of a perfect storm of both Covid19 and Brexit. It is catastrophic as the entire island is cut-off from the continent and that has repercussions on the market.’
The FTSE 100 closed down 112.86 points at 6416.32 while the FTSE 250 fell 2.1pc, or 424.18 points, to 19,692.11.
In total, £38.8bn was wiped off the value of companies on the FTSE all-Share index of firms listed on the stock market.
Although the FTSE 100 has risen 28pc since its March lows, it is still down nearly 16pc since the start of 2020, putting it on course for its worst year since the financial crisis in 2008 when it fell 31pc.
Russ Mould, investment director at AJ Bell, said: ‘Markets are reeling from the latest twist in the coronavirus crisis. The emergence of a new strain in the south east raises the prospect of strict restrictions for an uncertain period while the UK races to vaccinate its population.’
The economy shrank in the first and second quarters of this year – putting Britain into recession. But output rose again in the third quarter as the first lockdown ended and business reopened – bringing the recession to an end. However, it is feared the economy will shrink again in the final three months of this year and the first three months of 2021 – meaning the UK is back in recession.
ruth Gregory, senior UK economist at Capital economics, said the ‘severe Covid19 restrictions’ introduced over the weekend by Boris Johnson ‘raise the chance off a double-dip’ recession.