Following the discovery of a new strain of Covid-19 in the UK, a number of countries have put travel bans to and from the UK in place to contain the mutated virus. These restrictions will inevitably have an effect on all global business, but how will they affect trading operations? We look into the specifics of the travel bans, and the potential impact they could have on global markets.
How will travel be affected?
At the time of writing, the bans on travel affect all but four of the countries in the EU (the exceptions being Greece, Slovenia, Estonia and Lithuania), prohibiting non-essential travellers from the UK or travellers who do not have official residency in the respective countries. Countries that are allowing non-essential travellers are imposing a requirement to quarantine upon arrival.
Outside of the EU, a number of countries have imposed restrictions on all travellers from the UK, and suspended inbound flights from the UK.
For the USA in particular, British nationals cannot enter the USA and its territories if they have been in the UK, Ireland, Schengen zone, Iran, Brazil or China within the previous 14 days. British nationals who fit these criteria must then be prepared to self-isolate for up to 14 days after arrival and must test negative via PCR or Antigen test no more than 72 hours before departure from the UK, supplying written documentation of the lab test result.
Within the UK, more than 75% of England has been placed under Tier 4 coronavirus measures, the strictest level of lockdown. Under these restrictions, all but the most essential work travel is prohibited, and travel abroad is also prohibited except in cases of work or education. Scotland has also recently announced a full lockdown across the country, with a stay at home order put down in law.
What effects could this have on trading?
The global pandemic has already had significant effects on UK trading- according to the Office for National Statistics (ONS), UK trade saw falls of £16.7bn in imports and £14.9bn in exports in the second quarter of 2020, a drop by 31.8% and 18.5% respectively when compared to the same period in 2019.
These drops are largely attributed to the travel bans and global lockdowns, and were largely seen in travel and transportation services. However, excluding non-monetary gold and other precious metals, goods imports and exports increased by £16.6 billion and £14.1 billion respectively in the third quarter of 2020, an increase of 19.0% and 21.9% respectively compared to the same period in 2019. This increase was attributed to the brief transition out of lockdown and the rolling back of public health measures, so it is likely that the increased travel restrictions and stricter health measures implemented recently will have a significant and adverse effect on global trade, particularly in the UK.
Of the types of financial instruments on the global trading market, the travel restrictions are likely to have a particularly significant effect on commodities trading, as is evident by the recent fluctuations in goods imports and exports over 2020.
Shares are also more likely to be more volatile as a result of the logistical difficulties presented by the travel bans affecting shares that depend heavily on imports, as well as sudden socio-economic shifts in the financial and political spheres- the rapid decline of the FTSE 100 from March 2020, in its worst year since 2008, is a clear demonstration of this volatility.
Even more liquid financial instruments such as forex are not immune to the impacts of the travel bans. While the liquidity of the market helps insulate forex from the immediate impact that shares and commodities have suffered, and the forex market’s lack of dependence on physical trades means that trading can be conducted from home, mass unemployment and financial insecurity across the financial world has made the forex market more volatile than it traditionally is.