Scottish Parliament elections and the risk to sterling

By Jeremy Hawkins, Senior European Economist
May 3, 2021

Scotland will vote on Thursday to elect the 129 new members of the next Scottish Parliament (MSPs). These will comprise 73 constituency members and 56 regional members. Normally, this would not be a big issue for financial markets but, courtesy of Brexit, this time is different.

Why it matters

As part of the UK, Scotland, which accounts for about 7.5 percent of UK GDP, voted by a sizeable 68 percent to 32 percent in the June 2016 Brexit referendum to remain in the EU. However, it lost out in the overall vote which the anti-EU camp won by 52 percent to 48 percent. Ever since then, there has been a major push by the Scottish National Party (SNP) to hold a second independence referendum (so-called indyref2) with a view to Scotland leaving the UK and re-joining the EU as a fully independent state. The party was defeated by 55 percent to 45 percent in the first independence referendum held in September 2014 but believes Brexit has given it a much better chance this time. The SNP argues that Westminster should accept a pro-independence majority as a valid mandate for a second ballot. Accordingly, sterling investors will be watching very closely to see how the pro-independence parties fare in an election that, ultimately, has the potential to rip the UK apart. A big victory for the independence bloc could hit sterling hard while a good result for the anti-independence group should be at least mildly bullish.

Opinion polls ahead of the 2014 referendum correctly predicted a victory for the anti-independence parties but by only a small margin. Sterling subsequently reacted positively when the actual result was much more clear-cut.

How it works

Voters have two votes, one for a constituency MSP, and another for a regional ballot. The 73 constituency MSPs are elected on a first-past-the-post system. The second vote is for the seven MSPs for each of the eight regions, chosen on the basis of proportional representation. To secure outright control, a party would need to win at least 65 seats.

All eyes on the SNP

Key will be the SNP vote. With currently 61 seats, the party now led by First Minister Nicola Sturgeon has won every Scottish Parliament election since 2007. However, it lost its overall majority in 2016 and has subsequently continued in power with only a minority government. There is minimal chance of another referendum unless the SNP has a good night. Amongst the other parties, the Greens (5 seats) also favour independence as does the newly created Alba Party but the Conservative and Unionists (30 seats), the second most powerful party, as well as the Liberal Democrats (5 seats) and Labour (23 seats) are opposed.

What the polls are saying

A relatively easy win for the SNP is widely predicted but it is far from certain that the party will secure an outright majority. If not, support from some of the smaller parties, notably the Greens, might well be enough to fill the shortfall but the result could still be seen as something of a setback for the independence drive.


Normally the votes are counted as soon as the polls close at 22:00 local time and the results are released overnight. However, due to Covid restrictions, the count is not expected to begin until Friday morning and the final tallies may not be known until the weekend.

Referendum uncertainties

Under the Scotland Act of 1998, the Scottish Parliament cannot pass legislation relating to matters “reserved” to Westminster, including “the Union of the Kingdoms of Scotland and England”. This has generally been interpreted as meaning that any independence referendum would need Westminster’s consent. However, it has never been tested in the courts and it may be that there is a route whereby the London Parliament’s say can be bypassed altogether.

Adding to the uncertainty is the position of PM Boris Johnson. Having previously insisted that the 2014 referendum should be seen as a once in a lifetime event, Johnson’s view according to some recent reports has shifted towards a reluctant acceptance that a large majority for the pro-independence bloc should equate with a second referendum. Complicating matters further, even if indyref2 goes ahead the outcome is unclear. A recent survey by The Sunday Post put support for Scottish independence at 49 percent with 51 percent against. However, the numbers were flipped to 2 percentage points in favour of ‘Yes’ when people were asked if Scotland was allowed to re-join the EU after leaving the UK. A separate survey for the Scotsman last week found a 54 percent/46 percent split against.

The SNP had indicated that it wanted to hold indyref2 this year but the timetable has been upset by Covid and a new ballot before 2022 (at the earliest) now seems very unlikely. In any event, a strong pro-independence vote on Thursday would no doubt see the pound begin to revert back to its pre-Brexit trading pattern whereby swings in the currency become more a function of the opinion polls and less a response to the economic data.