• February 26, 2024

U.K. heads to elections as possible step toward Scottish independence looms

Like so many once mighty conglomerates, the UK could disintegrate.

In the UK elections on Thursday there will be a mix of campaigns, including for the Mayor of London. However, the most important for the financial markets is the Scottish Parliament.

The pro-independence Scottish National Party, led by Nicola Sturgeon, could claim a majority in parliament with 129 seats – and even if that wasn’t enough, it could potentially rule with the Green Party, which also favors independence. This would create the conditions for a request for a second independence referendum after the failed attempt in 2014.

A request would be just that – the UK government, led by Prime Minister Boris Johnson, would have to agree, and so far he has been consistently against a Scottish referendum.

“The stronger the support for the Scottish National Party, the greater the pressure they can put on the British government to push for a second referendum on Scottish independence. We note that the SNP has lost support in the last few surveys. So whether she can get a majority in the Scottish Parliament remains to be seen, ”said George Buckley, Nomura’s chief UK economist.

British Prime Minister Boris Johnson wears a Welsh flag face mask and holds an ice cream as he visits a cafe on Barry Island during Senedd’s election campaign on May 3, 2021 in Barry, South Wales.

Matthew Horwood / Agence France-Presse / Getty Images

ING analysts pointed out that the 2014 referendum did not have a major impact on the currency market and they do not expect much movement this time around for the hardest hit currency pair, the pound versus the euro
GBPEUR, + 0.17%.
They pointed out that every other Scottish referendum would be years away – and the markets only started pricing the Brexit referendum six months before the event.

There’s also the trifle that polls don’t show Scots support independence despite being incredibly close – Politico’s polling average has union-friendly voters by a narrow 2-point lead. An independent Scotland would have sensitive issues to deal with, including which currency to use and the division of assets such as North Sea oil and debt.

“I would be bearish against a Scottish currency if it had one,” joked Kit Juckes, the London-based head of currency strategy at French bank Société Générale.

Still, a move towards a Scottish referendum could take some of the air out of selling UK stocks. The midcap FTSE 250
MCX, + 0.33%,
This is seen more as a game for the UK economy than the large-cap FTSE 100
UKX, + 1.21%,
has gained 10% this year.

“We would expect long UK reopening bets placed on the back of the effective domestic to be closed [COVID-19] Vaccine launch in Q1 21, ”said Viraj Patel, senior strategist at Vanda Research.

Voting for the Scottish Parliament ends Thursday evening at 10:00 p.m. (5:00 p.m. East) and it may take until Saturday for the Scottish results – a mix of constituency and regional votes – to be fully tabulated.

There will also be a parliamentary by-election for the British House of Commons in the northeastern town of Hartlepool. According to polls, Johnson’s Conservatives will easily triumph over the Labor Party led by Keir Starmer. The UK’s successful COVID-19 vaccination campaign appears to mark the day for the Tories current reports of Johnson’s financial relationships with donors doing little to advance the survey.

Sadiq Khan is expected to comfortably win re-election as London Mayor and keep the capital in Labor’s hands.

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