FTSE 100 Recede as PM Announce New Local Lockdown Restrictions in England

Summary

• New lockdown restrictions sent jitters to the UK stock market and dragged the indices lower
• British PM announced a 3-tier system to implement local lockdowns after a sudden spike in the number of coronavirus cases
• Job redundancies are expected to rise once again in the Leisure & Entertainment sector with the job retention scheme nearing its end this month

UK stock market closed on a mixed note on Monday after the British Prime Minister Boris Johnson imposed fresh restrictions to curb the spread of the deadly pandemic. According to the new rules announced by the British Prime Minister, pubs and bars could be closed in specific locations across London. During the trading session on Monday, Restaurant (LON:RTN) and Marston’s (LON:MARS) shares retreated by more than 9 per cent and 5 per cent, respectively. The FTSE 100 on Monday also retreated as oil majors BP (LON: BP.) and Shell (LON: RDSA) were down by nearly 2 per cent due to plunge in oil prices.

The world has learnt how to live with the threat of the coronavirus pandemic, which emerged from Wuhan, China more than 8 months ago. The cases have been rising sharply again after being stabilising in recent months. This could also reflect increased testing done by the government. UK has witnessed more than 40 thousand deaths and 600 thousand active cases so far, according to the World Health Organisation (WHO) data.

During the initial strike of the coronavirus pandemic, the government urged people to stay indoors and imposed strict lockdown to curb the spread of the pandemic. From government’s perspective, lockdown and Covid-19 vaccine are the only way to protect the people and the economy. The latter still has a long way to go, however; lockdown along with testing and contact tracing has been the only viable option for governments across the globe to mitigate the spread of the deadly virus.

Due to sudden spike in the number of coronavirus cases, people fear the second wave of virus, and therefore, another lockdown has been announced by the British Prime Minister. Notably, Boris Johnson had earlier mentioned that the UK has already passed its peak.

Why Local Lockdown?

Local lockdowns are better for the economy in contrast to national lockdown. Instead of bringing the whole nation to an abrupt halt, some parts of the economy can help it in moving forwards despite a challenging environment. However, local lockdowns can create a lot of confusions for Britons and can paint a messy picture.

The national lockdown was lifted in June as the UK had passed its peak of the initial wave of the pandemic. However, national rules were still in place to keep a check on the rising number of infections.

During the last week of September, pubs restaurants and bars across England were asked to shut shops by 22:00 hrs, according to national rules. Masks have become a mandatory requirement for the Travel & Leisure industry. Introduction of ‘Rule of 6’, which allows a gathering of six or less people, for meeting families and friends, mainly to reduce transmission of the deadly virus.

The British government has now announced local lockdowns on top of these national rules. The UK has already witnessed a local lockdown in the city of Leicester in June after a sudden rise in coronavirus cases emerged from factories of Boohoo Group (LON:BOO), London’s well-known high-street fashion retailer.

The British Prime Minister has announced a new series of local lockdown restrictions in England on 12 October. Johnson’s administration has announced three tiers of local lockdown: medium, high, and very high.  

Each lockdown tier varies in the amount of flexibilities given to individuals. England has been witnessing “medium” tier of local lockdown from mid-October that includes 10 pm curfew on pubs and restaurants along with the national “rule of six” for gatherings.

A “higher” tier of local lockdown would probably disallow people to meet people from other households.  Lastly, the “very high” tier of local lockdown for places where the coronavirus is spreading rapidly and UK’s national asset, the NHS could come under pressure. A “very high” tier of local lockdown would be imposed in the Liverpool city region from 14 October, and all leisure & entertainment zones are asked to shut shops again. Notably, London managed to escape the top category.

Unemployment likely to rise

Job redundancies are expected to rise once again in the Leisure & Entertainment sector with the job retention scheme (JRS) nearing its end this month. The sector has already witnessed several job losses during the eight months of unprecedented crisis. From the quarantine regime, national rules to local lockdowns, they all have weighed down heavily on one of the most battered sectors of the economy.  UK’s pub operators, JD Wetherspoon (LON: JDW) and Mitchell’s and Butlers (LON: MAB) closed in red on Monday after the lockdown announcement by Johnson’s administration.

Pubs, high-street retailers, & restaurants are under the pump as the government has announced further local lockdowns. Not all stores would be affected due to local lockdowns; however, national rules could possibly deter them from doing business freely. The battered sector is expected to witness some more job losses in the near term. The investors should brace themselves for these losses as the furlough scheme is due to expire by the end of this month.