The introduction of new pandemic-related restrictions by Downing Street hit travel and hospitality, retail and other shares on Thursday.
Following the announcement from Prime Minister Boris Johnson of the government’s ‘Plan B’ to combat the spread of the new omicron variant of coronavirus, which calls for mask wearing in public settings and a return to home working.
Markets were also reacting to the potential for 'Plan C', which one of Number 10's scientific advisers said had already been considered, including potentially banning households from mixing at Christmas, plus other near-lockdown or actual lockdown measures as recently introduced in some European countries.
Running the numbers on the potential effects of the new restrictions, the Centre for Economic and Business Research calculated the working from home plan alone will cost £500mln a month in lost spending in just five UK cities (London, Manchester, Newcastle, Nottingham and Leeds).
Even without the new rules, travel and hospitality companies will be hit with a £1.3bn shortfall, it believes.
It said: "Last night’s announcement by the Prime Minister that England would move into Plan B over the next week – mandating mask wearing in indoor settings, guidance to work from home (WFH), and vaccine passports for crowded and large venues – doesn’t come without economic costs.
"Most significantly among the new restrictions, a shift to homeworking next week will induce a step change in commuter and thus city-centre consumer behaviour. Cebr estimates that the WFH order will result in a £0.5 billion spending shortfall in just five cities alone over the next month.
"On the other hand, we judge that restrictions relating to mask-wearing and Covid certification measures are unlikely to imply significant economic costs on balance, as consumers and businesses have increasingly adapted to such measures throughout the pandemic. A short-term cost may however be felt by businesses as they implement such measures over the coming days.
"Meanwhile, independent of Plan B, increased nervousness over the new variant and stricter travel restrictions are expected to cause a loss of £0.9 billion in UK hospitality revenues this month, and £0.4 billion in inbound travel spending."
Brakes put on rebound
“The page has been turned on the recovery story playing out on the financial markets this week, with the new chapter turning into a tale of woe for many ‘reopening’ stocks,” Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said in a note.
“News that fresh social restrictions are being imposed in the UK, amid worries that the new strain is more infectious have put a brake on the rebound of not just travel stocks but bricks and mortar retailers, and hospitality firms.”
Uncertainty about travel restrictions and the increased likelihood of cancellations mean people are less likely to take the gamble of booking long-haul flights, Streeter said, and British Airways owner International Consolidated Airlines Group (LSE:IAG) today extended its falls with shares down almost 3% at midday.
Rolls-Royce Holdings PLC (LSE:RR.) shares dropped over 3%, with investors disappointed that engine flying hours, although gradually recovering, are still at half of normal levels.
“It shows what a climb Rolls-Royce still needs to make to regain its pre-pandemic form and the omicron variant is clearly another set-back. With passengers cancelling or delaying planned flights, that means fewer planes for the company to service,” Streeter said.
Fresh restrictions and health concerns could make domestic travellers put reservations on hold and the loss of confidence in the travel sector extended to Premier Inn owner Whitbread, which was down 0.5%.
Fresh restrictions imposed in cinemas and theatres hit Cineworld Group PLC (LSE:CINE), which fell over 2%, while Restaurant Group PLC (LSE:RTN) sank nearly 6% on worries that diners will stay away and return to socialising at home, while the lack of commuter trade is set to limit after-work food and drink opportunities.
Streeter said there are fresh concerns about how resilient JD Wetherspoon Plc (LSE:JDW) will be over the coming months. “The chain had already seen a decline in older patrons over the past few months, and news that the strain is more infectious will do little to alleviate customer concerns,” she said.
Wetherspoon shares fell 1.5% at midday.
Deliveroo PLC (LSE:ROO) was back into positive territory yesterday amid expectations that the new restrictions will boost takeaways, but its shares fell today after the European Commission announced draft rules to give workers such as couriers for online platform companies some employment benefits.
“The company will now have to carry a much heavier burden of proof to demonstrate its riders are not contractors and even though it’s shown how determined it is to fight cases in the courts, there is likely to be protracted battle ahead,” Hargreaves Lansdown’s Streeter said.
Deliveroo shares were 1.7% lower.
Although shops are likely to stay open, Associated British Foods PLC (LSE:ABF) shares fell 1.6% on worries that shoppers at Primark will dwindle if commuters disappear from high streets.
Cardboard maker DS Smith PLC (LSE:SMDS) rose 1.25% after the company posted an 80% rise in first-half profit as online sales drive demand for its products.
The latest wave of restrictions is likely to see another shift to e-commerce sales so packaging needs are likely to stay strong, while postal group Royal Mail PLC (LSE:RMG) was also on the front foot, as another that has benefitted from previous restrictions.