UK – the consequences of Scottish independence

The outcome of the Scottish independence referendum is likely to be close. We think ultimately Scotland will vote ‘no’, against independence. This is our gut feel and on emotive subjects that serves best. But the vote will be close and will not permanently seal the debate. Further political/federal reform now looks inevitable within the Union. Should our instinct prove wrong there would be a high political price to pay. The economic consequences would also be acute, denting confidence north and south of the border. It’s likely the Bank of England would extend its ‘lower for longer’ monetary policy stance to counter the risks, while uncertainty over currency and debt will create additional volatility in the gilt market. The pound has begun to build in a risk premium ahead of the vote (perhaps 3-4%), but we stay short sterling versus the US dollar.

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