Philadelphia, Pennsylvania – (StockNewsDesk) – 09/22/2014 — The results of Scotland’s historic vote to decide whether it would remain a part of Great Britain or become its own independent country came on Friday. By a stronger than the expected margin, the country decisively rejected independence, choosing to remain a part of Great Britain.
No Side Wins
According to the political scientists, many Scots were dependent on government subsidies from London, which would be imperiled had they opted for “Yes.” Furthermore, Prime Minister David Cameron made many promises and concessions if Scotland decided to vote to remain a part of the union.
These reasons led undecided voters to break in the ‘NO’ side in the final days. Until a week ago, it seemed as if the Yes side was going to emerge victorious as they were leading slightly in most polls. Further, voter turnout was estimated to be 97%, and it was expected that higher voter turnout would support independence.
Effect on Currency Markets
The British pound would have been damaged by a vote for Scottish independence, and it sold hard in preceding weeks, when the result was still up in the air. However, as the vote drew near, the pound began to creep up in anticipation that Great Britain would remain intact. When the final vote came in, the pound had a brief spurt higher before remaining unchanged.
The implication of this price action was that traders were already anticipating a rejection of Scottish independence. Now that this immediate action is behind them, once again traders can focus on economic fundamentals rather than politics. Currently, the fundamentals look good for Great Britain, especially about its neighbors in Europe.
Whereas European economies are struggling with recession and deflation, Great Britain has been aggressive with monetary policy to stave off these outcomes. In fact, as European policymakers took the first steps toward its own quantitative easing program, the Bank of England is in the process of figuring out a timeline for raising interest rates.
Political Issues Continue to be a Source of Confusion
Like currency markets, world stock indices gapped up on the news but finished in the red, as traders used the good news to reduce exposure. This is partly because the news is not really a surprise. However, another major reason is Prime Minister Cameron’s statements after the vote, in which he walked back some of his promises and discussed extending the same autonomy granted to Scotland to England and other parts of Great Britain.
In an effort to keep the union intact, British leaders promised Scotland the right to control its own regional laws and taxation by its own parliament. Of course, voters in the other regions began to demand the same type of self-governance. This presents a shift to a more decentralized government which would make the country’s leadership less powerful and effective.
Overall, it seems that Great Britain has avoided the worst-case, short-term scenario. However, they may have opened a whole unknown can of worms as the country looks set to grapple with an entirely new political model. In the future, voters will decide another important issue – Great Britain’s membership in the European Union. In the short-term, these issues are looking to be continued to put downward pressure on the British currency and stock markets.