The Impact of Government Policy Responses to the COVID‐19 Pandemic and Brexit on the UK Financial Market: A Behavioural Perspective

Abstract

At the height of the COVID‐19 pandemic in the United Kingdom, the Governor of the Bank of England, while granting an interview, described the pandemic as an unprecedented economic emergency and said that the Bank could go as far as radical money‐printing operations. In reaction, the UK financial market, particularly the FTSE 100 and pound sterling, witnessed record‐breaking losses. Considering this evidence, we hypothesized that the emotions and moods of investors towards the financial market might have been impacted by the information they obtained from frequent government policy announcements. Furthermore, we proposed that the United Kingdom's final exit from the European Union (Brexit), which coincided with the pandemic, could have worsened the outlook of the UK financial market, as investors began to diversify their portfolios. Consequently, we examined the impact of government's policy announcements on investors’ reactions to the concurrence of the COVID‐19 pandemic and Brexit. Our findings reveal that the psychology of investors during the pandemic was significantly shaped by frequent policy announcements, which in turn affected overall market behaviour.