UK: The Scottish question returns - HSBC

Liz Martins, UK Economist at HSBC, notes that the Scottish First Minister Nicola Sturgeon has announced her intention to hold a second Scottish independence referendum, possibly between autumn 2018 and spring 2019.

Key Quotes

“She argues that, with 62% of Scottish voters having voted to remain in the EU last June, the UK vote for Brexit has changed the terms of the question Scottish voters answered in September 2014.”

“For the results to be recognised by the UK government, Westminster would have to grant Scotland permission to hold a second vote. Prime Minister Theresa May has batted away the question for now, and may attempt to delay the referendum until after the UK’s exit from the EU has been completed. On the other hand, declining to grant a second vote on Scottish independence, or delaying it, might strengthen the Scottish National Party’s case for ‘taking back control’ from London.”

“It’s a gamble

Ms Sturgeon is taking a risk. If the Scottish people reject independence for the second time in five years, the issue could be buried for a generation. And, currently, neither the opinion polls nor the economics back Ms Sturgeon’s hope that people have changed their minds since 2014. The opinion polls (by Ipsos Mori and YouGov among others) still put the no vote ahead and the data suggest an independent Scotland would have run a deficit of 9.5% of GDP in 2015/16 – double the size of the current largest in the EU (Spain). If Scotland did choose to apply for EU membership as a new independent country, it would in theory also be obliged to join the eurozone, which might be politically difficult.”

“But it still might happen 

A second vote would also complicate the UK’s Brexit negotiations: it is difficult for a country to negotiate a trade deal, in particular, when counterparties cannot be sure of the size and scope of the market. It also throws up questions for Northern Ireland, another country which voted by a decisive majority (56%-44%) to stay in the EU.”