The U.K.’s blue-chip index slipped on Tuesday, as London prepared to enter tougher COVID-19 restrictions and the prolonged Brexit trade deal talks strengthened the pound.
The FTSE 100
UKX,
-0.28%
index fell 0.3%, as millions of people prepared for stricter COVID-19 restrictions set to come into force at midnight. London and other parts of southeast England will move into tier 3 — the toughest level of restrictions — on Wednesday, in a bid to combat surging cases.
The internationally-exposed index was also hurt by the stronger pound
GBPUSD,
+0.71%,
which rose 0.8% against the U.S. dollar to $1.3430, extending Monday’s rally.
It comes after U.K. and European Union leaders promised to “go the extra mile” in Brexit trade deal talks on Sunday, extending negotiations into this week. The U.K. left the EU on Jan. 31, but the two sides must reach a deal over their future trading relationship before the transition period ends on Dec. 31 to avoid a ‘no-deal’ scenario. The more domestically-exposed FTSE 250
MCX,
+0.45%
rose 0.5%.
While the U.K.’s economic future remained in the balance, the economic impact of the COVID-19 pandemic was laid bare for all to see on Tuesday. The country’s unemployment rate rose to 4.9% in the three months to October, as the number of redundancies hit a record 370,000 in the same period.
ING developed markets economist James Smith said U.K. jobs data could get worse in the coming months. “We think that unemployment will have risen further in the final months of 2020, and could reach 6% by the end of the year. There is a risk of a more pronounced rise in 2021 depending on how/when the current level of wage support is removed — and whether those sectors that have remained close since March, such as nightlife and events, are able to reopen at that point,” he said.
Despite the country’s vaccine rollout continuing, the near-term reality of COVID-19 was also in investors’ minds. Health secretary Matt Hancock added to concerns, as he said a new variant of coronavirus had been identified in the U.K., possibly explaining the fast spread of cases in the south of England.
The government also came under renewed pressure on Tuesday to rethink the proposed relaxation of COVID-19 rules for five days over Christmas, with both the Mayor of London Sadiq Khan and the Labour Party leader Keir Starmer calling for the decision to be reviewed. European neighbors Germany and the Netherlands have both announced stricter measures in recent days ahead of Christmas. The U.K. plans to allow up to three households to meet indoors between Dec. 23 and Dec. 27.
JD Sports
JD,
+3.04%
was the FTSE 100’s biggest riser as the sports-fashion company said it had bought U.S. footwear retailer Shoe Palace for $325 million.
