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Opinion
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With one week to go today Azad Zangana, European Economist, Schroders provides his latest economic insight into the Scottish Referendum.
On the 18th of September, Scotland will decide whether it wants a divorce from its political union with the rest of the UK. Up until early September, most commentators, economists and investors had placed a very small probability on the referendum returning ‘yes’. However, since the second televised debate between Alex Salmond (Leader of the independence campaign) and Alistair Darling (leader of the ‘Better together’ campaign), polls of voting intensions have swung sharply towards independence, with one poll suggesting that an outright victory is possible.
In reaction to the news, sterling has depreciated by about 1.1% against the US dollar and by 0.8% against the euro since the end of last week. Moreover, a number of stocks with heavy exposure to Scotland have also seen notable falls in their share prices this week. Investors are rightly concerned by the trend, especially as the uncertainty that a ‘yes’ outcome presents for not only Scotland, but also for the rest of the UK.
We published an in-depth study on the issue in July (Scottish independence: economic and political challenges), but here are some of our conclusions:
Overall, both international and domestic investors are right to be concerned over the prospects for a ‘yes’ vote in seven days time, and we are not surprised to see heavy hitting Westminster politicians scrambling up to Scotland to make a last ditch effort. In the event of a ‘yes’ result, the UK and Scotland could be plunged into a huge pool of uncertainty, as the negotiations that follow will undoubtedly be messy, and potentially damaging for the reputation of both countries. In the event of a ‘no’ vote without a significant margin, the issue is likely to remain for many years which will prompt investors to place a risk premium on dealing with Scottish entities.
Azad Zangana , September 2014
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