Brexit: a new Scottish referendum looms?
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Brexit: a new Scottish referendum looms?

As British Prime Minister Theresa May prepares herself to trigger article 50 of the Treaty on European Union, thereby formally beginning the UK’s exit from the European Union (EU), another powerful woman is planning an exit of her own. Nicola Sturgeon, the Scottish First Minister, has announced plans to hold a second referendum on Scottish independence.

The issue of Scottish independence is what originally drew Sturgeon into politics, and she was at the heart of the campaign calling for it in 2014. At the time, she described it as a “once in a generation” event. But Sturgeon, and other Scottish nationalists, now argue that Britain’s monumental vote to leave the EU in 2016 has changed the rules of engagement. Scotland voted overwhelmingly to remain within the EU, unlike the English and the Welsh. In 2014, 55% of Scots voted to remain in the UK; recent polls now suggest the country is split right down the middle.

It is not clear, yet, exactly when this referendum could take place, what it would look like, or even if Sturgeon has the legal right to initiate it.

In regards to its timing, Prime Minister May would undoubtedly like to table a second Scottish referendum until her own complicated separation from the EU is completed. That could mean 2019, or it could mean later. Sturgeon, meanwhile, has expressed a desire to wait only until the full ‘Brexit deal’ is on the table – that is, once we’ve got answers to the many questions surrounding the divorce, such as whether the UK will retain access to the single market. Perhaps optimistically, she has suggested a late 2018 vote.

The terms of the “Brexit deal” that end up being agreed are also likely to shape exactly what Sturgeon pushes for. In the previous referendum on Scottish independence, for example, there was no need for a border (both the UK and an independent Scotland would have been EU members), and Scotland would have kept the Great British Pound – a currency that has devalued considerably since the second referendum was announced – as its national currency. If the UK pursues the “hard Brexit” that Ms. May seems intent upon, neither of these moves would make much sense for a Scotland hoping to pursue EU membership.

The last fundamental question, of course, is whether Sturgeon has the power to call a second vote on Scottish independence. Here, as in so many other places when it comes to the wider subject of Brexit, it gets complicated. If you ask Scottish nationalists, she definitely does. If you ask the UK government, she definitely doesn’t.

Lastly, investors will be considering what impact Scotland’s possible extrication from the UK will have on the wider world. It is fair to say, based on the movement of European stocks and the pound, that they are not hugely optimistic about it. But it’s also fair to say that they were terrified of Brexit and a Donald Trump presidency. As in those cases, the best course of action here may simply be to wait and see – and to remember that nightmares are often scarier when they exist only in our heads.

Disclosure
The opinions in this article do not reflect those of Dominion Fund Management Limited, and in the instance of any forward-looking statements, these should not be construed as advice.


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