UK economic headlines on Tuesday focused not on the UK construction sector posting its strongest jump in activity in seven months, but rather Sterling ‘tumbling’ – apparently on the back of polling data showing a surge in support for Scottish independence. Commentators speculated that if the ‘yes’ vote wins in three weeks’ time, there is potential for significant financial, economic and political risk to the UK. This is the kind of uncertainty the markets love to hate.
The first thing to note is that Sterling’s ‘tumble’ has only brought the currency back to April levels and in fact continues the trend lower begun weeks before Tuesday’s poll results were released. Currency behaviour is deeply complicated and the impact of Scottish independence on Sterling is ambiguous at best.
Secondly, there are a number of issues that we cannot yet the know the outcome of (let alone the outcome of the referendum) and even the ‘experts’ continue to disagree on – things like sharing (or not) of the debt burden and what currency an independent Scotland would use – so it would seem pretty rash to make investment decisions on the basis of this one poll.
To make an investment call we would have to know: a) the outcome of the vote b) the legal situation/practicalities of independence (and not just about whether Scotland will be able to keep the pound) c) and then the impact this would have on the currency. No-one can know all the answers with any certainty at this point.
The value of investments will fluctuate, which will cause prices to fall as well as rise and you may not get back the original amount you invested. Past performance is not a guide to future performance.