The cost of independence

Whatever your personal views may be on the upcoming referendum to decide the fate of Scotland, there’s no denying the economic impact it is having on the UK economy at both a macro and micro level.

The markets have already voiced their distain at volatility with an initial 3% drop in the share price of RBS and Lloyds after a poll put the Yes campaign marginally ahead. The State backed banks were expected to relocate south of the border should the vote go this way in order to abate any uncertainty over their inherent financial strength and lender of last resort. Indeed, RBS subsequently announced that they will move their registered office south should Scotland vote for independence.

It is this financial uncertainty which will continue to erode confidence in the short-term prior to the vote and significantly longer should Scotland break away from the UK. The mind boggles at the implications for a breakup – splitting National Debt, the cost of the armed forces, a new currency and interest rate setting policy being just a few items for the agenda.

From recent years we have seen first-hand the seismic impact of financial earthquakes from across the globe, think US sub-prime mortgage collapse. Undoubtedly, Scotland’s success or failure as an independent state will have a significant ripple effect on the rest of the UK.

The pound has already fallen as a result and it is expected the cost of borrowing will rise as investors demand higher returns to compensate for greater perceived risk. The former will impact on businesses trading in overseas markets whilst the latter will have a direct impact on their ability to raise and service debt – already fraught with difficulties following the credit crisis.

So what impact will the results of Thursday’s vote have on future UK growth? One thing I am sure of is the ingenuity of small and medium-sized UK businesses to prosper in the face of adversity and tap into new markets. Anyone fancy a stab at designing the new Union Flag!

Stay tuned for an upcoming Topical Tip on ‘Alternative Finance’ highlighting the ever increasing avenues to raise funding.

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