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Summary
- Scotland makes a significant contribution to the UK economy, with many of the major industrial enterprises of the country having its facilities there.
- Some of the largest companies have manufacturing operations in Scotland. They are BAE Systems, Rolls- Royce, Thales, Alexander Dennis, Raytheon, Babcock, and SELEX Galileo.
- The United Kingdom has recently seen a spike in Covid- 19 infection rates, prompting the government in the UK to take corrective measures to contain the spread.
The Covid-19 infections saw a rapid surge in Scotland since the third week of September 2020 (15 September: 238 new cases, 4 October: 706). This has prompted the Scottish government to impose a 14-day lockdown so as to control the pandemic from spreading it further. The second wave of Covid 19 infections is also a concern for the United Kingdom, which too has seen a spike in the infection rate in the last few weeks.
Scotland, which is home to several large and strategically important companies in the UK, would see these enterprises shut down and tender a severe blow to the economic recovery efforts of the UK government.
For the Scottish economy, the second lockdown is feared to bring a disastrous outcome as hundreds of thousands of jobs could be lost, as many businesses might close because of the lockdown.
The policymakers in the country, however, are firm on their lockdown decision as they feel the damage due to the pandemic getting out of control would be far worse than the temporary financial losses.
At a halt
The lockdown in Scotland is set to begin from 9 October and is slated to end on 23 October. Most of the activities in the country during the period would be shut, including all major factories that produce components supporting manufacturing in other parts of the UK.
The GDP of Scotland had dropped significantly after the first national lockdown imposed on 23 March. It had been gradually recovering since May when the restrictions were relaxed. The second lockdown would undo a lot of the recovery that has taken place over the past few months and push the economy into a deeper state of distress.
UK economy’s recovery
According to economists, a second round of lockdown can slow down the economy and the recovery may take at least three years. Though the entire economy will experience the slowdown, there are few sectors that could be more adversely affected. For instance, tourism and hospitality would be the worst hit. Both industries had seen a late reopening leading to only a nascent recovery in their business activities.
Though many of their staff has been brought back from furlough, a significant portion remains away from work. The new restrictions will be particularly painful for small businesses like pubs and restaurants, which are mostly cash businesses and had started to gain traction only recently.
Top three companies likely to be affected
BAE Systems Plc, Rolls- Royce Holdings Plc, and Babcock International Group Plc are three large-sized companies whose activities are expected to be temporarily hampered by the lockdown in Scotland.
BAE Systems Plc (LON: BA.)
(Source: Thomson Reuters)
The company is the largest defence, aerospace and security equipment producer in the United Kingdom. Since the announcement of reimposition of a lockdown in Scotland, the shares of the company have not reacted adversely at the London Stock Exchange. They have been trading in positive territory over the past five days. At the day’s closure on 6 October, the shares of the company had been trading at GBX 496.90 per share, while on 1 October, they closed at a lower value of GBX 486.40 points.
Rolls- Royce Holdings Plc (LON: RR.)
(Source: Thomson Reuters)
Rolls- Royce Holdings Plc is one of the largest multinational engineering companies in the UK as well as in Europe. It is an aircraft engine producing company. The announcement of the Scotland lockdown has not yet impacted the share price performance of Rolls- Royce on the London Stock Exchange.
Beginning 1 October, the shares of the company have been trading in positive territory, excepting for a minor dip on Friday 2 October. On 6 October, the shares of the company closed at a value of GBX 150.0 per share gaining close to 20 per cent over the previous day's close.
Babcock International Group Plc (LON: BAB)
(Source: Thomson Reuters)
Babcock International Group Plc is one of the largest defence manufacturing and strategic services provider companies in the United Kingdom. The announcement of the second lockdown in Scotland had no effect on the share price movement of the company till now. The stock prices have been rising since 1 October 2020 and closed at a value of GBX 266.70 on 6 October 2020.
Rising Covid-19 infections
The current resurgence of the infection rates in the UK has not reached a state where a national lockdown would be necessitated. Several local restrictions are already in place, and the lockdown at Scotland can be seen as an addition to this list.
The government would do everything to avoid a total lockdown, which would have a much higher bearing on the overall economic output. To this end, it is crucial that these localised lockdowns and stricter restrictions are successful in containing the spread of the pandemic.
