Billions of pounds have been wiped from the value of the London stock market and sterling has come under heavy selling pressure amid chaos at Britain’s borders caused by the new strain of coronavirus and stalled Brexit talks.
The FTSE 100 fell on Monday by more than 100 points, or almost 2%, erasing £30bn from the index of leading UK company shares, after France imposed a 48-hour ban on freight from the UK and other countries banned flights in response to the emergence of a fast-spreading strain of Covid-19.
The blue-chip index had fallen by more than 200 points during the morning but clawed back some of its losses to end the day at 6,416.
The pound fell by almost 2 cents against the dollar to trade at $1.33 and also fell against the euro to €1.09.
Share prices on Wall Street also fell as investors bet that the fast-spreading strain of coronavirus would lead to renewed global travel restrictions. US airlines were hardest hit. The Dow Jones industrial average was down by more than 150 points in New York after recovering from steeper losses earlier in the day.
The selloff in financial markets comes as border disruption and renewed lockdown measures for much of the UK pile pressure on an already fragile economy.
The Bank of England warned last week that the UK was heading for a double-dip recession, with weaker growth than expected in the final months of 2020 continuing into the start of the new year as the government scrambles to respond to rising coronavirus cases before vaccines can be rolled out widely enough.
With time running out to agree a post-Brexit trade deal with Brussels before the end of the transition period at 11pm on 31 December, analysts said the turmoil at Britain’s borders represented a potential curtain-raiser for a no-deal departure.
Olivier Konzeoue, a foreign exchange sales trader at Saxo Markets, said: “Markets are not positioned for a cliff-edge breakup between the UK and Europe. No doubt headline risks will keep sterling under pressure in the coming days.”
The new Covid strain, thought to be up to 70% more transmissible but not more deadly, has prompted a wave of countries to ban travel from the UK. Business groups said fraught Brexit negotiations and pressure on the UK and EU to reach a deal may have aggravated the situation.
Adam Marshall, the director general of the British Chambers of Commerce, said: “The UK and French governments must work urgently to find a solution to keep accompanied freight moving in both directions between our countries. Please set Brexit posturing to one side and focus on consumers, health, livelihoods and businesses in both the UK and the EU.”
Rupert Harrison, a former adviser to George Osborne who is now an investment manager at BlackRock, tweeted: “The obvious and sensible thing for both sides would be to extend the Brexit transition period, even by a few weeks.”
Share prices in travel companies tumbled as investors reacted to the travel bans on UK flights, with International Airlines Group, the owner of British Airways, falling by as much as 16% at the market open but clawing back losses to end the day down 8%.
Britain’s biggest banks, which are heavily exposed to the UK economy, were also hit, with shares in Lloyds Banking Group falling by almost 4%. In the FTSE 250, the shopping centre operator Hammerson, whose properties include the Bullring in Birmingham and Bicester shopping village, fell 12% to 22p. Hammerson shares were changing hands at 130p last Christmas. Frasers, the new name for Sports Direct, dropped by 10% and Dixons Carphone fell 7%.
With tougher Covid restrictions anticipated to remain into the start of 2021, analysts said Britain’s economy would struggle for momentum. Ruth Gregory, a senior UK economist at the consultancy Capital Economics, said: “The next few months are likely to prove tougher than we thought and the economy may be weaker than we expected. But as long as vaccines are effective and widespread, the recovery should get going again in the second half of 2021.”
Losses were recorded throughout Europe. Germany’s Dax lost 2.8%, France’s Cac 40 fell 2.4% and Spain’s Ibex lost 3.1%. Shares in the aircraft maker Airbus fell almost 3% and there were losses for Accor Hotels and the French airports company ADP.
“The new coronavirus strain is weighing heavily on sentiment as the UK’s isolation from Europe becomes increasingly physical as well as conceptual,” said Richard Hunter, the head of markets at Interactive Investor.
“Against this backdrop, investors are far less likely to commit fresh capital to the market, especially in the last few trading days of the year.”