Market Reactions to Scotland’s No Vote
“Sterling, gilts and UK equities are likely to rally today on Scotland’s No result,” forecasts a leading global analyst.
Tom Elliott, International Investment Strategist at deVere Group, one of the world’s largest independent financial advisory organisations, is responding after Scotland voted to stay in the UK after voters rejected independence.
He comments: “UK financial markets will rally on relief that it is ‘back to normal.’ The possibility of an imminent major upheaval is now over.
Potential Risks to UK Fiscal Position
“The risk that the UK would inherit Scotland’s share of the national debt, but without the income coming from oil, risked pushing the debt/GDP ratio and current account deficit into dangerous territory. This is what had been weighing on sterling.
Tom Elliott
“After an initial rally today, I suspect that in the near-term there will be little repercussions from events over the past two weeks on the UK economy.”
He continues: “Despite it being ‘neck and neck’ up to the vote, there would now need to be a major increase in political uncertainty for the economy to be significantly impacted – and this is, for now at least, unlikely.
Long-Term Political and Demographic Impacts
“That said, the support of the younger voters for the ‘Yes’ campaign suggests that demography is not on the side of the union.
“However, if oil prices weaken over the long-term due to alternative energy and oversupply, federalism wins over converts from the Yes campaign, and Alex Salmond retires from politics, the independence question may go to sleep for a long time.”
Broader Implications for UK and the EU
Mr Elliott adds: “One of the most important factors to watch now in the run up to the 2015 general election and a possible ‘in or out of Europe’ referendum beyond that, is that Eurosceptics will certainly feel empowered.
“This could generate uncertainty and is worth monitoring carefully.
“Eurosceptics may now argue that the threat of leaving the EU will help extract concessions from Brussels, as the Scots have achieved. However, they need to be careful, while UK politicians were happy to go to Scotland earlier this week to express their strong desire to see Scotland remain in the union, there are few major European politicians who would risk doing the same to keep the UK in the EU.”
