Over the past month we’ve been hearing lots about the Scottish referendum to break the 307 year old union. Experts felt that a ‘Yes’ vote would mean big trouble for UK investors. Last Friday we finally received the decision of 2,001,926 for ‘No’ and 1,617,989 for ‘Yes’ with 85% of the Scottish population having voted. The markets largely ignored the possibility of a split until very recently causing some huge uncertainty in the market.
Traditional Markets
Early Friday morning markets rallied after it became clearer that Scotland would stay in the union. The FTSE 100 rose 39.72 points and UK Gilt yields hit a nine week high. After the announcement, markets began to cool off.
The polls leading up to the vote indicated a real possibility of Scotland voting ‘Yes’ and no doubt created uncertainty and instability for UK investors. June saw the pound reach a six year high against the dollar at nearly $1.71, but on September 10th the pound fell to $1.61. Following the results, the pound had rebounded by hitting a two year high against the euro and a 2 week high against the US dollar.
Royal Bank of Scotland has confirmed that they will not be relocating to England given the outcome.
Property
The Scottish property market was also slow amidst the uncertainty. Recently the UK has seen commercial property investment rise substantially, including important cities outside of London. Scotland has experienced a halt in property sales while the political future was still under debate. Now the property market may start to see some growth as investors become more confident and sales that have been put on hold go through.
Conclusions
While many are breathing a sigh of relief, we can expect some volatility in the markets due to lingering referendum uncertainty. Though the outlook seems brighter for the UK, the ‘No’ vote does not mean that the political instability is over. However these concerns are mainly political, and without the massive destabilising effects witnessed recently, allowing markets to return to normal.