Fears of strict new lockdown rules hammered vulnerable UK stocks on Friday, fuelling a sharp sell-off in travel, leisure, and banking stocks.
Reports in the Financial Times that the UK government may impose a two-week nationwide lockdown in October rattled investors in listed firms most reliant on domestic income.
Health secretary Matt Hancock said a nationwide lockdown would be the “last line of defence,” but the BBC reported a shutdown of hospitality firms could instead be announced next week.
Britain’s FTSE 100 (^FTSE) shed 0.5%, with the Bank of England’s decision on Thursday to hold fire on fresh stimulus also weighing on markets.
But concerns over rising infection rates, testing shortages and speculation over stricter restrictions on the UK economy hit travel firms hardest.
British Airways owner IAG (IAG.L) took a hammering as its stocks nosedived 12%. Other airlines plummeted, with EasyJet (EZJ.L) down 8%, WizzAir (WIZZ.L) down 4.8% and Ryanair (RYA.L) shedding 4%.
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Cruise giant Carnival (CCL.L) was down 6.9%, plane engine maker Rolls-Royce (RR.L) lost 4%, Carnival (CCL.L) dropped 4%. In the hotel sector, Premier Inn owner Whitbread (WTB.L) lost 1.9%, and Intercontinental Hotels (IHG.L) shed 4.1% by mid-afternoon in the UK.
“Amid growing chatter about a potential two-week nationwide lockdown in October in the UK, it was perhaps no surprise to see investors lose interest in stocks that could be negatively affected by such activity,” said Russ Mould, investment director at AJ Bell.
“It would dash any hopes of a half-term getaway,” he added.
Leisure stocks also took a hit on fears of a hospitality shutdown, with pub group Wetherspoon (JDW.L) down 4.8% at one point but paring back losses to 1.2% close to the end of the day. Catering giant Compass Group (CPG.L) lost 2.4%.
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Other coronavirus-sensitive sectors reliant on the UK economy also took a hit, including banking and housebuilding. Lloyds (LLOY.L) shed 3.2%. NatWest (NWG.L) shares dropped 2.9%, AND Barclays (BARC.L) shed 2.5%.
“The government wants to avoid economic disruption, but clearly a return to tighter lockdown measures next month would disrupt businesses and put further pressure on jobs,” added Mould.
“Banks already face the prospect of rising bad debts, so a derailment to the country’s fight for economic recovery would be negative for the banking sector.”
Leading housebuilders Persimmon and Taylor Wimpey also took a hit, with confidence, sales, construction and supply chains all potentially under threat from tighter restrictions.
3,395 new cases were reported in the UK on Thursday, and Wednesday saw the highest number of new cases reported in a day since May.
New restrictions affecting two million people came into force in the north-east of England on Friday, and ministers are reported to be considering fresh restrictions for Leeds and most of Lancashire.
But gains for mining stocks and retailers offset losses to limit declines on the FTSE, with demand in Asia and UK online retail sales boosting confidence.