Comment: No vote earns collective sigh of relief

A plebiscite on EU membership could be the next constitutional crucible. Photograph: Getty
A plebiscite on EU membership could be the next constitutional crucible. Photograph: Getty
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THE referendum on Scottish independence turned out to be not as neck-and-neck as several polls had suggested, with the 55 per cent to 45 per cent vote for the Union giving a comfortably, though not overwhelmingly, clear-cut decision.

That has been welcomed by most of the business world and financial markets.

The alternative of a razor-thin majority for either the Better Together or Yes camps would just have prolonged the uncertainty for business, savings and financial investment by creating the unignorable spectre of a Quebec-style “never-endum”. It would have been corporate anxiety postponed, rather than allayed.

It should also be remembered that the “once in a generation” independence debate was never a fine-margin call with Scottish and British financial institutions and the markets they operate in.

They were plangently bearish over an independent Scotland, with deep worries about currency stability, European Union membership, national debt and the implications for the pensions industry following any Yes result.

Many Scottish household corporate names virtually changed personality during the lengthy run-up to the vote, from being Trappist monks on their concerns to, in the home straight, not being able to shut up about them. Better late, than never.

It must have been an almost audible collective sigh of relief from those chief executives as the referendum result came through in the wee small hours of Friday morning.

Markets rallied on what was seen as a lifting of financial and economic uncertainty, with sterling hitting two-year highs against the euro, and well up against the US and Australian dollars and Japanese yen. Equities rose as well.

I think the pound, having regained its poise after earlier pricing in the risk of Scotland leaving a diminished Britain, will remain supported over the coming months by the feeling that an interest rise from the Bank of England is approaching fast.

However, I don’t buy the argument that equities will be enlivened by animal spirits in the wake of the No vote. Better earnings fundamentals are offset by there remaining too much other geopolitical risk around, from the Ukraine to the still sickly Eurozone. We are more likely to see a period of stock market relief rather than exuberance.

For the good of business, we need to see fast action from Westminster on draft legislation for the extra powers on taxation, spending and welfare benefits granted by the three British party leaders as an eleventh-hour sweetener to Scottish voters. Those decisions have long-term implications and need to be made public and studied. Swift implementation of the spirit as well as the letter of the powers is honourable.

But it would also hopefully dispel residual uncertainty for Scottish businesses about how those extra powers at Holyrood may affect them, and forestall any invidious reaction to them in England.

That is important. Whether one is pleased or bruised by the referendum outcome, it has provided clarity and relative business stability – at least until the next big constitutional crucible of a 2017 plebiscite on Britain’s membership of the EU if David Cameron is re-elected next year.

Still, taking one momentous decision at a time is probably wise.

Carney and Co pay more heed to sickly salaries

THE sharp fall in unemployment last week would normally be seen as making an interest rate rise by the Bank of England more likely – particularly as it coincided with the second consecutive vote by two hawkish members of the BoE’s monetary policy committee (MPC) for such a hike.

It is fair to say that the strength of the fall in the rate of joblessness to 6.2 per cent

(6 per cent in Scotland) in the three months to July, from 6.4 per cent in the quarter to June, wrong-footed many observers.

But it is fascinating how unemployment seems to have been supplanted as a reference point for a rate cut by continuing very soft real wage growth. The latter was up a sickly 0.6 per cent, well below inflation, in the most recent three months.

Many believe that even further appreciable falls in unemployment will be largely irrelevant in the MPC’s deliberations, and that any rate cut is unlikely before next spring.

How different from governor Mark Carney’s initial forward guidance in the summer of 2013 that the Bank would only consider monetary tightening when unemployment fell from a then 7.7 per cent to 7 per cent, as if making it a crucial rate rise determinant.

As unemployment has fallen much more rapidly than expected that policy-making totem has been discarded as too simplistic.

It is clear the Bank has decided that the subdued wage growth, together with the knowledge that a significant slice of the fall in unemployment is due to more self-employed and post-pension workers taking jobs, means the jobless figure is just one component of a more complex picture in assessing monetary policy.

Carney and Co are not playing one-club golf any more. «

Twitter: @martinflanagan8