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Wales will enter a Level 4 ‘lockdown’ from Monday, December 28.
New restrictions will be introduced for all of Wales, including the closure of retail, hospitality and gyms.
People will be asked to work from home in all cases where possible, and travel will only be allowed in exceptional circumstances.
The announcement was made by the First Minister on Wednesday, December 16.
Speaking at the Welsh Government’s coronavirus press briefing, Mark Drakeford said the move to Alert level 4 was unavoidable following a rise in the number of people in hospital and in intensive care with coronavirus.
Over 2,100 people are currently in hospital in Wales with Covid-19, and the rising numbers have led many within the NHS to question an easing of restrictions over the Christmas period.
Last week, both Aneurin Bevan University Health Board and Welsh Ambulance said they were experiencing significant pressure impacting their services.
Mr Drakeford said: “When I was last here on Friday, I explained that if we did not see a change in the rate of infections then a move to tighter restrictions would be inevitable.
“Since then, far from stabilising or reducing, there has been a sustained rise in our communities and in our hospitals.
“One in five people are now testing positive for the virus here in Wales.”
The new level 4 restrictions are the most severe alert level in the Welsh Government’s Coronavirus Control Plan.
It mirrors restrictions implemented during Wales’ ‘fire break’ in October and November, and the first lockdown in March and April.
Non-essential businesses including retail, leisure facilities and gyms will be required to close from Christmas Eve.
All hospitality including pubs, restaurants and accommodation providers will be required to close from 6pm on Christmas Day.
Tier 4 restrictions will be reviewed on a rolling three-week basis, however it is understood schools, colleges and universities will reopen in the new year.
Mr Drakeford also issued new guidance for meeting others over Christmas, advising only two households “should” come together to form a bubble over the Christmas period.
The First Minister said: “A smaller Christmas is a safer Christmas, a shorter Christmas is a safer Christmas.
“The fewer people we mix with inside our homes, the less chance we have of catching or spreading the virus.
“None of us wants to be ill this Christmas. And we don’t want to give coronavirus to our close family or friends.”
In line with the four-nation approach announced in November, Mr Drakeford admitted the law allowing up to three households to meet is not expected to change.
Hefin David, MS for Caerphilly, said: “The amendments to the Christmas arrangements are in the light of the rise in cases in the last two weeks.
“We all need to make sure we make as few face-to-face connections as possible and stay well within the rules. That way we can keep our family and friends safe and protect the NHS.
“I’ll be making sure I’m available to people at regular points over the Christmas and New Year holiday, including a Facebook Live Q&A session on Monday 21st December.
“Next year will be better and with a community spirit we will get through these difficult times together.”
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