Scottish First Minister Sturgeon who is also leader of the Scottish National Party (SNP) has announced that she will formally ask the Scottish Parliament for approval to hold a second Scottish independence vote between Autumn 2018 and Spring 2019.
The Scottish Nationalist Party, which controls the Scottish Parliament, has claimed that the UK decision to leave the EU has changed the basis on which there was a no vote in the 2014 Independence referendum. In particular, the SNP is opposed to leaving the Single Market. There is majority support for independence within the parliament and the Scottish Government should get approval to request a vote.
The UK government will look to resist a referendum on this timeframe, although it will be politically difficult to deliver an outright rejection of the SNP demands, especially as the Scottish government could call a non-binding vote. The Scottish call will maintain underlying uncertainty and tend to increase political divisions both within Scotland and the UK as a whole.
The Scottish announcement tended to overshadow Parliamentary approval for the EU Withdrawal Bill which gives the government authority to invoke Article 50 and start formal negotiations to leave the EU. There will also be an additional layer of political uncertainty.
Concerns over a second vote unsettled Sterling to some extent, especially with concerns that it will divert government focus from the EU negotiations and could undermine investment.
Although Sterling was initially resilient, GBP/USD retreated to lows below 1.2150 on Tuesday with EUR/GBP strengthening to 0.8770.
The UK government response will be watched very closely in the short term.
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