U.K. Battling Coronavirus And Brexit On Two Fronts. The Country Cannot Afford To Lose Either Battle.
The United Kingdom is battling several wars simultaneously, and if it fails to win even one of them, it is highly likely that the U.K. economy will be entirely crippled.
The Brexit transition period is coming to an end at the end of this month, and there are still no signs of having any deal with the E.U. If U.K. lawmakers fail to secure a Brexit deal on January 1, the U.K. can no longer enjoy E.U. membership benefits. This means that businesses of all sizes in the U.K. will face unprecedented challenges, and the reality is that the majority of business owners are not ready for this.
Traders and investors are very much concerned with the U.K.’s Brexit position because it was expected that during the two-year transition period, U.K. lawmakers would be able to secure a deal. However, Prime Minister Boris Johnson made several threats to the E.U. that a no-deal Brexit is something his government is prepared for. In reality, we are nowhere close enough to be in that state.
Recent evidence of this came to light when France shut its border with the U.K. due to the coronavirus variant and fear of spreading this mutant virus in France. Businesses and consumers have panicked during this period, and there were serious concerns about the shortage in the food supply chain.
However, there is some optimism that the U.K. will have a deal at the last minute or even the last second. After all, this is the reason that the British Pound is off the Brexit lows, and it is very much maintaining its gains against the dollar.
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The chart below shows the sterling-dollar price action on the daily time frame.
Coronavirus: Another Lockdown
The second battle that the lawmakers are fighting could also be called a self-inflicted injury. Boris Johnson had plenty of warning and time to bring the coronavirus situation under control. However, the initial lockdown was put in place too late, and it caused massive damage. In fact, the death rate and coronavirus infection rate has outpaced other European countries. To follow that, the government’s Eat Out to Help Out scheme multiplied the virus at a record pace, and that led to a second lockdown.
Businesses in the U.K. suffered heavy losses due to the first lockdown and the second lockdown took more blood out of them. Now, we are facing a situation where we have a new possible variant of coronavirus. Luckily, BioNTech, the company behind the current coronavirus vaccine in collaboration with Pfizer, believes that it can re-engineer a variant coronavirus vaccine in a matter of weeks if needed.
The fact is that the coronavirus situation has deteriorated substantially once again, and lawmakers are in panic mode. Yesterday evening, Boris Johnson’s government had another meeting, and the indication is that not only London and the Southeast of England but other cities and parts of the U.K. may go into Tier-4 lockdown. Such an event is highly likely to make businesses more vulnerable and derail the economic recovery altogether.
The U.K. stock index is the worst performing index among its peers this year.
The Final Verdict
The bottom line is that with so many lockdowns in the U.K., it is pretty much a given that the economic climate is going to be a lot more cumbersome, and if the current lockdowns extend, we are likely to face an unprecedented economic crisis.