All Eyes on Scotland

The UK and the world are waiting with bated breath for Scots to cast their votes in today’s referendum on independence. After almost 300 years of union with the United Kingdom, Alex Salmond’s SNP appears to have gained the ascendancy in the run-up to the September 18th vote. While the upcoming ballot is balanced on a knife-edge, and likely to be determined by independents, the markets are highly volatile with the GBP slipping against a basket of currencies in recent days. Forex traders have been cashing in on the high volatility levels in the market, with the USD gaining ground against many of its trading partners. For Scotland, the issue goes much deeper than political independence alone. Secession from the United Kingdom comes with real economic costs. These relate to several key factors such as taxation, social welfare, education, healthcare, currency issues, defense, EU membership and the like.

Scotch Whisky Concerns

In fact, one of Scotland’s finest exports – Scotch Whisky – faces the worst if Scotland secedes from the UK. The CEO of the Scotch Whisky Association (SWA) is concerned that Scotland cannot go it alone in the international markets and hope to maintain the profitability of this export. Scotch Whisky accounts for 85% of Scottish food and beverage exports and 25% of UK food and beverage exports. The industry recorded a £10 billion increase in exports between 2004 and 2014, now standing at £4.26 billion. Some 35,000 people are dependent on the industry. In the event of a YES vote, Scotland will likely face increased uncertainty about entry into the 27-nation bloc European Union. As it stands, Scotland depends on the UKs clout to enjoy tariff-free exports to the EU. An estimated 45% of Scotland’s whisky exports were snapped up by the EU in 2012.

Trading Opportunities

In a surprise turnaround, the GBP gained against the USD. Minutes from the Bank of England MPC revealed that two of the policymakers, Ian McCafferty and Martin Weale, were calling for hikes in interest rates to 0.75%. However, these measures were outvoted. Stronger employment figures boosted the sterling and the number of people seeking unemployment benefits declined. Presently the GBP is trading at $1.6345 (up 0.45%). The market is bullish ahead of the Scottish independence vote, but a NO vote will send the currency in the opposite direction.