Concerns over the UK’s risk of multiple referendums has been increased since the 7 May general election. While the election resulted in a majority government for the Conservative party, the future of Scotland in the UK and membership of the European Union is less clear.
The biggest macroeconomic concern facing the UK following the election is the referendum on the UK’s continued membership in the EU, which David Cameron has promised will take place sometime before the end of 2017.
Steve Davies, manager of the Jupiter UK Growth fund, said, “The timing of the vote has yet to be announced, but I suspect that David Cameron will not want the debate to be a distraction for too long. In any case, the uncertainty created by the referendum may have a negative impact on business investment, so that is something we will be keeping a close eye on over the coming months.
“It’s become cliche that markets hate uncertainty, but it is true,” he added.
Concerns have been raised over how markets could react to a potential British exit from the EU. Mr Cameron has pledged to renegotiate the UK’s position within the international organisation prior to holding a referendum vote, particularly on the issue of immigration.
It is possible that if Mr Cameron can lead significant changes with EU policy that are favourable to the UK, then the referendum vote could be suspended. However, updates to EU policy are extremely difficult as all member nations must agree to the changes, so this prospect is unlikely.
The second concern is the possibility of another Scottish referendum. The Scottish Nationalist Party (SNP) won 56 of the 59 seats in Scotland, amounting to 50 per cent of the vote share in the country.
Despite losing the referendum last year while the SNP was under Alex Salmond’s leadership, Nicola Sturgeon capitalised on the lingering sentiment of the Scottish people wanting greater devolution of powers.
This has led many to think that another referendum on Scotland’s place in the UK could happen in the near future, though Ms Sturgeon did not campaign under such a promise.
While markets may indeed favour certainty, referendums – or just the speculation a vote – are inherently uncertain.
julia.faurschou@ft.com
