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Summary
- Covid-19 cases saw a recent surge that could derail the economic recovery and impact different sectors.
- Hospitality, Airlines, and Real Estate could be some of the worst impacted sectors if cases continue to rise and any new restrictions are imposed.
Major benchmark indexes worldwide suffered their worst decline of 2021 on 19 July, as investors fear a recent rise in cases of delta variant of coronavirus could derail the economic recovery. UK blue-chip index FTSE 100 went below the 7000 mark and closed at its lowest level in the last three months.
UK government removed most of its remaining Covid-19 restrictions on Monday, allowing all the pubs and restaurants to operate at full capacity. Britain media named 19 July as “Freedom Day” as all restrictions were lifted. However, “Freedom Day” in Britain did not begin on a positive note as the country reported over 39,000 cases for the day. The prime minister had to isolate himself after being notified that he came in contact with someone who was Covid-19 positive. The recent surge in cases of coronavirus could impact UK’s economic recovery.
If the cases continue to rise or it turns out to be another wave of Covid, it could disrupt many business activities, which were hoped to recover with phase of normalization amid no restrictions. Here are some of the sectors that could be impacted adversely if the cases continue to rise:
Airline Sector
The airline sector was the first sector to close down when the coronavirus pandemic started. Countries imposed travel restrictions to curb the spread of the virus, which impacted the airline sector. As per the International Civil Aviation Organization (ICAO) estimate, which actively monitors the economic impact on the aviation sector, the airline’s sector lost over USD 371 billion in revenue, and a 60% drop in passenger traffic was reported in the year 2020. ICAO Group has estimated another 44 to 47% drop in passenger traffic in the year 2021 and expects revenue loss of USD 288 to 314 billion and a 3.3% to 3.5% contraction in world GDP.
Listed aviation stock in the London Stock Exchange has been giving negative year-to-date (YTD) returns: Wizz Air (LON:WIZZ) is down by 8.22%, EasyJet Plc (LON:EZJ) is down by over 6%, and IAG Group (LON:IAG) stock also trade in the negative zone because of repeated lockdown and travel restrictions.
UK regional airlines Flybe had already closed down its operations in 2020, and many airlines are surviving the pandemic with government support or raising fresh debt from lenders. The airline sector worldwide is reported to have USD 320 billion in debt, of which Europe and the UK account for a major chunk of USD 51.3 billion, with UK-listed airline stock like EasyJet and British Airways owner IAG Group raising £1.04 billion each in a separate bond issue.
Hospitality sector:
The hospitality sector, which includes food and accommodation industries, including restaurants, pubs, bars, catering, and hotels and employs close to 2.38 million people, representing 6.9% of total UK employment, is another sector deeply impacted by the pandemic.
The pandemic severely impacted the sector because of restrictions and high fixed cost of operation, and persistent low revenue. As per the Office for National Statistics (ONS), almost 1 in 5 hospitality sector businesses have low confidence that their business will survive the next three months.
The UK government supports the hospitality sector with business loans and reduced VAT rates and Job retention schemes, but if there is continuous rise in cases, it will impact the recovery in the sector.
Real Estate Sector:
The current rise in highly transmissible delta variant cases could adversely impact the real estate sector and halt the recovery in the sector, which was possible because of the stamp duty holiday offered by the UK government. The stamp duty cut helped property buyers save up to £15,000, which led to the revival of demand and a rapid rise in UK housing prices, which are up by 5.7% on an annual basis.
Real Estate is one of the core sectors and backbone of the country’s economy. The real estate sector in the UK employs close to 1.2 million people and contributes close to £100bn to the UK’s economy each year, these figures could be impacted by new restriction rules to curb the spread of coronavirus.
