Scottish Independence Referendum – Union stands

No winners or losers

After a hectic few weeks of vigorous campaigning and a roller-coaster of opinion polls which took a lot of people by surprise, the balloting is over and the votes are counted. The structure of the vote ensured a clear, binary yes/no outcome, and with 55% of the vote, the Scottish people have decided to remain part of the United Kingdom. Turnout was high on a polarising issue that few people felt indifferent about. Here we discuss some of the implications of the vote.

What happens next?

In the immediate aftermath of the referendum, the ‘no’ vote mostly means returning to business as usual. That is not to say the events of the last few weeks won’t have an effect over the medium term, and could certainly have near-term political ramifications, but otherwise there is relatively little impact from the result.

The political angle

Although Alex Salmond and the Scottish National Party may be disappointed with the result, the ‘yes’ campaign started as the underdog so overall the campaign has probably done little harm to Mr Salmond. Indeed, he has still managed to secure the promise of more powers for Scotland despite initial resistance from Westminster.

A lot of the political fallout will now be in Westminster, and parties of all stripes will be asking how the Government almost allowed the ‘yes’ campaign to steal a march on the ‘Better Together’ camp. Despite getting their desired outcome, the panicked last-stage change in rhetoric, which saw the Government implicitly agree to transfer more powers to Edinburgh if they voted ‘no’, is likely to hurt the ruling coalition. Many will view ex-Prime Minister Gordon Brown as the saviour of the ‘no’ campaign, and with only eight months until the general election, the apparent weakness of the current party leaders could easily lead to fresh leadership contests with the conference season starting shortly.

“Once in a generation”

There may be a sense that if just a few factors had been different, the outcome of the referendum could have been different. Ahead of the vote, politicians on both sides called this a ‘once in a generation’ vote. The previous referenda about Scottish devolution took place in 1979 and 1997, suggesting a political generation is 17-18 years. It will be important in the following few weeks and months for politicians in Scotland to reiterate this point and stave off any fears of ‘Independence Vote - part 2’. Without such reassurances, Scotland risks underinvestment in capital intensive industries such as North Sea oil exploration & production as companies and investors become reluctant to commit long-term capital while any uncertainty over sovereignty remain. Such under-investment, as was witnessed in Quebec following their 1995 referendum, would be negative both for Scotland and for the UK economy.

Markets

Markets will be reassured that a period of protracted uncertainty will be avoided. There could be a bit of a relief rally in UK assets such as equities and bonds and a source of volatility has now been withdrawn. Sterling is also likely to regain some of its strength – good if you’re going on holiday, slightly less good if you’re holding overseas assets. Overall, however, the effects are likely to be relatively limited, certainly compared to the scenario we would be facing had the vote gone the other way.

Our view

Regardless of the outcome, this was always going to be a major event, and even though the vote came out as ‘no’, we do not believe this is a case of ‘winners’ or ‘losers’ but has been an important decision for the country to make. The political implications will continue, but now markets, economics and day-to-day life hopefully return to normal. Markets, in particular, don’t react well to uncertainty, and hopefully this issue can now be put to bed for at least another generation.