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The Scottish Referendum and its possible impact

In Market Analysis

As Thursday, the day of reckoning for Scotland and its possible split from the United Kingdom draws ever closer, the debate reaches fever pitch with political, economic, celebrity and even Royal personnel voicing their views in the hope of swaying public opinion. This week, alone, we have heard from several obscure sources, ranging from the likes of David Beckham, Billy Brag to even the Queen herself who accidentally went against her previous better judgement of keeping quiet on the subject by urging the people of Scotland to ‘think very carefully’ before casting their votes.

Despite a big last ditch effort from both David Cameron & Alex Salmond on either side of the political debate, polls over the last couple of weeks have proved to be totally inconclusive.

So what would it mean if the ‘Yes’ voters won through? The truth is, nobody really knows, David Cameron and his coalition have appeared to be extremely desperate not to be remembered as the Government to break up the 300 year old Union, culminating in a promise yesterday to allow Scotland a lot more power in deciding their own policies going forward should the vote come in negatively. This uncertainty has been blamed for the recent decline in sterling against the US dollar which can be seen on the following chart, dropping like a stone over the last 2 months after reaching a high on the 15th July at 1.7190, now trading a 1000 pips lower at 1.6180:



The uncertainty over the future of the UK has not only specifically hit the sterling currency value hard but has also caused some of Scotland’s top financial institutions to feel the need to voice their concerns should the ‘Yes’ vote for Scottish Independence prevail; both RBS and Standard Life have confirmed that an independent Scotland would force their hand in moving their HQ’s out of Edinburgh and down to London, no doubt causing extensive job cuts in the process and fuelling fears on a more general level of a mass exodus of Scottish-based assets and the withdrawal of deposits from Scottish-based bank accounts. Should this result come in, there would follow however, a prolonged period of negotiation regarding the terms of economic landscape going forward. The obvious major aspects of this negotiation would be the future of the Sterling currency, how existing UK government debt would be attributed, how the UK’s national assets and defence forces would be organised and of course probably the most significant, how the UK’s oil and gas reserves will be allocated?

This point alone could have a monumental impact on the rest of the UK should Scotland decide to go it alone, 96% of the revenue generated by the UK’s North sea Oil supply & 47% Gas would go to Scotland, leaving a lot of reshuffling to be done for the rest of the UK to fill the hole left by this loss of revenue. Some experts say, however, that this may not be such a bad thing given the steady decline in output of this supply over the past 20 years and could actually force the arm of England and the rest of the UK to be a lot more proactive in looking for other ways of producing the energy needed.

According to Bloomberg TV this morning JP Morgan have issued their guesstimates about what will happen to the value of the pound against the US dollar following the release of the results on Friday morning; if a Yes vote comes in they predict a 6% drop in the price of cable, whereas they see the value bouncing 3-4% should the UK stay together which perfectly highlights, no matter what the overriding decision is by the Scottish nationals, we are due volatile sessions in the FX & Commodity markets at the back end of this week.