United Kingdom

Financial markets breathed a sigh of relief on Friday after Scotland retained the 307-year union of Great Britain and rejected independence from the UK. Although the 'No' campaign won by a clearer margin than earlier opinion polls had suggested, victory for the union looks set to be followed by a period of political upheaval for the UK. Prime Minister David Cameron has vowed to pursue a new constitutional settlement for the whole of the UK, including greater powers for England, Wales and Northern Ireland; while the 'Yes' campaign will now place pressure on Cameron, with his Liberal Democrat coalition partners and the Labour Party, to "honour in full" commitments made in recent weeks.

Markets opened on Friday with the risks evaporated of capital flight and a currency split. Only a day before, the City had been on its guard for a flight of deposits from Scotland on the scale of the Northern Rock crisis of 2007. Uncertainty over the division of national assets and debt and the currency arrangements of an independent Scotland increasingly weighed on the confidence of investors in recent weeks. EPFR Global reported that outflows from UK equity funds exceeded $1 billion (£614 million) in the week to last Wednesday. However, investors are expected to return to UK stocks and shares with renewed confidence. As Martin Gilbert, chief executive of Aberdeen Asset Management, has observed, "UK investors will welcome a reduction in the uncertainty of recent months".

This week's bulletin also includes:

  • The 'No' victory draws a line under the recent uncertainty for the UK economy and markets, but the pledge to devolve further power to Scotland and the UK brings its own complexities.
  • Global markets also greeted Scotland's decision as one less uncertainty in a summer marked by geopolitical threats and concerns in the advanced world's stock markets.
  • The focus of world markets, as 2014 draws in, remains on the US retreat from its bond-buying programme, or 'quantitative easing', and the timing of a rate increase.
  • Investors can be more confident that the Bank of England will look to raise interest rates in 2015, which could have been delayed by independence.

View this week's Market Bulletin , which contains thoughts and opinions of St. James's Place and our range of investment managers on the key issues affecting investors.

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