What does Plan B mean for UK markets?

The UK government has been assuring the public for months that Plan B would not be necessary but, with the Omicron variant threatening to unravel the progress the country has made in its fight against Covid, reports suggest the government’s Covid-O cabinet subcommittee will meet later today to discuss implementing new measures.

Let’s have a look at what this could mean for markets.

What is the UK’s Plan B?

Plan B is the UK government’s backup plan that will be used if the NHS is at threat of being overrun because of Covid. Plan B, according to government plans outlined earlier this year, would include:

• The consideration to advise people to work from home where possible
• Mandatory Covid passports in all nightclubs, large indoor venues with over 500 people inside, and outdoor settings hosting over 4,000 people.
• Legally mandating face coverings in certain settings

However, the guidance is vague and the government has admitted the components of Plan B could vary and that ‘a final decision would be made based on the data at the time’. For example, it has not ruled out introducing Covid passports to more events and businesses. Ultimately, the government has given itself a lot of flexibility on what Plan B will actually entail if it is triggered.

Reports suggest any new rules could be introduced swiftly, with three unnamed Whitehall sources telling the FT people could be advised to work from home as soon as Wednesday night before being put to parliament on Thursday.

The Institute of Economic Affairs warned today that Plan B measures could ‘easily knock’ 2% off the country’s economic output and flagged that more financial support may have to be provided to companies that will be worst hit.

How is GBP responding to news of Plan B?

The pound is coming under pressure amid rising concerns of tougher Covid restrictions in light of the rapid spread of Omicron. Expectations are also growing that the BoE will put off any rate rise in December, opting for a wait and see approach owing to the uncertainties that Omicron brings to the outlook. Yesterday, known hawk Michael Saunders even noted the benefits of ‘waiting and seeing’ in light of the latest Covid developments. 

Where next for GBP/USD? 

GBP/USD has broken through 1.3194 to hit a fresh yearly low after breaking below a multi-month falling trendline support. The RSI supports further losses whilst it remains out of oversold territory.  

Immediate support can be seen at 1.3161, the yearly low, beyond here before the next relevant support at 1.1325 and 1.31 round number. 

Any meaningful rebound will need to retake the falling trendline resistance at 1.333 to bring 1.3370 into focus. 

How is the FTSE 100 responding to news of Plan B?

The internationally focused index is trading higher with global peers on the back of more optimistic news from Pfizer, which said a third dose of its vaccine neutralises the Omicron variant, and thanks to the weaker pound. However, should the UK move into a lockdown the UK index could come under more pressure. 

Where next for the FTSE? 

The FTSE is actually pushing higher extending its rebound from 6970 the early December low. 

The index has retaken its 50 & 100 sma and key resistance at 7235 keeping the buyers optimistic. The RSI suggests that there is more upside on the cards. 

It would take a move below 7235 to negate the near-term uptrend and a move below the 100 sma at 7150 for sellers to gain traction.

How are stocks responding to news of Plan B?

News of fresh restrictions have pushed a number of sectors lower today, particularly those likely to be worst hit by any new measures such as hospitality, retail, leisure and travel stocks.

Most pubs, restaurants and leisure stocks are still recovering from the last set of restrictions that were imposed on them, and Plan B looks set to introduce more rules ahead of the busy holiday season. Stocks including Cineworld, Wetherspoons, Restaurant Group and Whitbread are all among the biggest losers in the FTSE 350 today, while AB Foods is also under pressure today as Primark and other high street retailers could lose key sales to online rivals if Plan B is introduced.

The UK and other countries immediately responded to the emergence of the Omicron variant by reintroducing international travel restrictions, which largely remain in place. The fear is that the introduction of Plan B cements the idea that travel restrictions could be here to stay for longer, or even tightened further. Airlines IAG, easyJet, TUI, Wizz Air and engine maker Rolls Royce were all trading lower today, while other companies that also have significant exposure to the sector like WH Smith and SSP Group could also be ones to watch. Meanwhile, domestic travel stocks are also set to see their recovery derailed by Plan B, putting bus and train operators like National Express, Go-Ahead Group and Firstgroup onto the radar.

Fresh restrictions could also shift attention back to those that can continue performing under fresh restrictions. Pets at Home has proven reliable during past lockdowns and the growth of the pet care market shows no signs of slowing down. Consumer goods giants like Unilever and Reckitt Benckiser have also seen sales rise when restrictions have been imposed in the past, particularly for hygiene products. Food delivery stocks such as Deliveroo, Just Eat Takeaway and Domino’s Pizza could also benefit if people are told to spend more time at home.

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