In the past five years, (the prospect of) Brexit has proven to be a major driver behind the movements in sterling, either through changes in market sentiment, perceived political risk, or the UK’s economic fortunes. So far, this hasn’t been the case for (the prospect of) ‘Scoxit’. Stefan Koopman, Senior Macro Strategist at Rabobank, expects the pound to eventually pay attention to this issue if a second independence referendum is being held.

Scottish independence referendum is not much of an issue, for now

“The market seems to be relaxed now. For one, the polls on Scottish independence are much more balanced then they were a few months ago. This is probably a function of the strong vaccine roll-out, for which the prime minister is apportioned a large share of the credit, and the expectations of a better pace of growth this year and next. That said, the pound has also been confronted by a round of headlines regarding sleaze in government circles.”

“To borrow an overused quote from Hemingway’s The Sun Also Rises, these are the kind of changes that happen ‘gradually, then suddenly’. This would imply that the pound will continue to ignore the independence issue until it suddenly can’t ignore the issue anymore.”

“As the prime minister says he won’t allow a referendum, most market participants tend to dismiss the risk. However, we would note that this issue doesn’t go away that easily: the SNP already seems to be toying with the prospect of an ‘illegal’ referendum and making Westminster take them to court. If such a scenario becomes indeed likely to unfold, the pound would have to take notice, and we’ll adjust our EUR/GBP 0.84 forecast accordingly.”