Scottish elections & GBP

Scottish elections on Thursday are unlikely to have a big impact on GBP near term. However, a majority win by the Scottish Nationalist Party could raise the chances of another independence referendum. The Pound could struggle to reach pre-Brexit vote levels over the coming years

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Voters in Scotland will head to the polls on Thursday for the Scottish Parliamentary elections. This could mark the start of a renewed push towards Scottish independence. But that doesn’t necessarily mean that the Pound will see a strong reaction. Here’s why. 

All eyes will be on the performance of the Scottish Nationalist Party and whether it manages to win an outright majority. The polls suggest that it could be another close call – as it was back in 2016. Even if the nationalists fail to win a majority again there are likely to form a coalition with the Greens another pro-independence party.  


What this means for the vote of independence? 

The Scottish elections could well bring back Scottish independence headlines, particularly in the case of an outright win by the nationalist party. However, just because the Scottish Nationalist Party win or even form a coalition with the Greens, this doesn’t necessarily mean that another independence vote will happen or that it will happen immediately.  

Ultimately it is Downing Street who decides whether Scotland can have another independence vote and Boris Johnson has been clear that he will block any further independence referendums. That said, any refusal could put more wind in the sails of the independence drive. Ultimately this is likely to become a key theme in for the General election in 2024. 

It is worth keeping in mind that any agreement by the British government to give Scotland another vote of independence could send the Pound lower. This is because the risk of Scotland leaving the UK is growing. Currently Citibank sees a 35% chance of Scottish independence over the next 10 year. 


No immediate GBP reaction; could drag longer term 

Positioning ahead of the elections could keep the lid on any Pound gains heading towards Thursday’s vote. However, the outcome of the elections is unlikely to change the path of the Pound right now given that any potential vote of independence is unlikely or would be at least 4 years away. However, a strong majority by the SNP does raise the chance of a potential referendum down the road and longer term it might prevent the Pound from reaching its pre-Brexit levels. 

On Thursday there is more chances of the BoE influencing the direction of the Pound.

Read my colleague Joe Perry's take on what to expect this Thursday from the UK central bank and how it will impact the Pound here

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