British Pound Slips on Foot and Mouth Disease Outbreak

Foot and mouth disease has been discovered in the UK once again. The last time this epidemic hit the country was back in 2001 when the economic impact was close to GBP10 billion. The currency also suffered greatly as a result of the outbreak and in order to avert the same economic disaster that we saw in 2001, the government suspended exports of meat and dairy immediately.

[B]How bad can this get?
[/B] Even though the UK government will be working aggressively to control the situation, the breakout of Food and Mouth disease will lead to some sort of economic impact. In 2001, Foot and Mouth disease was first discovered on Feb 19, 2001. The UK responded by slaughtering animals, cancelling sporting events and postponing the general election. On a broader scale, British meat was shut out of the international markets and tourism was seriously affected. The crisis at the time was estimated to have cost Britain as much as 10 billion pounds (or $16 billion USD at the time). The outbreak was at its height in March and was not contained until August. At that time, the disease also spread to the Netherlands, Ireland and France. Restiction on livestock were not lifted until 2002.
[B] Between spring and summer of 2001, the British pound fell from 1.4750 down to a low of 1.3680.[/B]

Source: eSignal[/B]
The latest outbreak was confirmed to be on August 3rd. The US and Japan responded by banning the imports of British meat over the weekend. The EU announced a ban as well on live animals, fresh meat and milk products from the UK this morning. There should be no immediate tourism impact but this is dependent upon whether the government is able to control the situation relatively quickly. Even though the Bank of England’s Quarterly Inflation report has put a bid into the GBP/USD throughout last week, the recent FMD breakout will be a strong enough offsetting factor.