FTSE 100 falls amid Covid freight ban and stalled Brexit talks

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 due to the new strain of coronavirus and stalled Brexit talks.

The FTSE 100 tumbled by almost 3% on Monday morning, erasing as much as £50bn 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 from Britain in response to a faster-spreading strain of Covid-19. The FTSE 100 was down by 182 points to 6,346 by late morning.

The currency fell by more than 3 cents against the US dollar to trade below $1.32 and slumped against the euro by more than 1% to €1.09 as global investors reacted to the day of frantic developments.

Set against the backdrop of fraught Brexit negotiations, the selloff in financial markets comes as border disruption and renewed lockdown measures for much of the UK piles 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 fast 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 warned that 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 for now to be up to 70% more transmissible, but not more deadly – has prompted a wave of countries to ban travel from the UK. However, business groups also warned that fraught Brexit negotiations and pressure on the UK and EU to reach a deal may have exacerbated 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, the former advisor to George Osborne, who is now an investment manager at BlackRock, said the “obvious & sensible thing for both sides would be to extend the Brexit transition period, even by a few weeks”.

“For the EU to use the threat of no deal and border disruption as leverage when there will be massive need for catch up flows wd be pretty hostile,” he tweeted.

International Airlines Group, the owner of British Airways, was the biggest faller on the FTSE 100, down by 16% as investors reacted to travel bans on UK flights that are expected to have a bigger impact on the national flag carrier. The jet engine manufacturer Rolls-Royce fell 9%, while travel group Tui dropped 7% and Carnival, the cruise ship company, fell 9%.

Britain’s biggest banks, which are heavily exposed to the UK economy, were also hit. Shares in Lloyds Banking Group, the largest high street lender which has the majority of its business in Britain, fell 6% and Barclays, with bigger international operations, was down 5%.

Losses were recorded throughout Europe – in Germany, the Dax lost 1.9%, France’s Cac 40 fell 2.4% and Spain’s Ibex lost 2.8%. Shares in aircraft maker Airbus were off almost 5% 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.”

Grant Shapps, the UK transport secretary, has insisted the UK will not ask to extend the Brexit transition period beyond 1 January, despite chaos at UK ports and the new phase in the coronavirus crisis.

However, he said there would be “significant disruption” at Dover and that supermarket supply chains were pretty robust. Shapps added that short-term disruption was not a specific problem; the issue is how long it persists.