Economy: new challenge

Indy case ‘will require more radical solutions for economy’

Graeme Roy: sharp focus (pic: Terry Murden)

A more radical economic case for independence will be required than was presented in 2014 because of the changes prompted by Brexit, says a leading economic commentator.

Whereas the poll five years ago was predicated largely on “a degree of continuity” with open borders and retention of sterling, Scotland was now heading towards a bigger break with England.

Professor Graeme Roy, director of the Fraser of Allander Institute, said there were notable differences facing those calling for a second independence referendum compared to the situation at the time of the first in 2014.

“Brexit has thrown into sharp focus the challenges of major structural economic change. Voters will also want to be much more mindful about what both sides can credibly say about their so-called Plan B than was the case in either 2014 or the EU Referendum in 2016,” he said.

“Perhaps most significantly, many of those on the ‘yes’ side in 2014 argued that there would be a degree of continuity between the then status quo and independence.

“The plan was to retain sterling, share financial regulation and keep an open border. But if the case for a second referendum is now framed around Scotland pro-actively taking a different path to the UK, then it necessarily follows that the economic proposition for independence will need to be more radical on issues such as currency, customs and fiscal policy than in 2014.”

While the independence debate rumbles on, Boris Johnson’s landslide election victory triggered a Santa Rally on stock markets amid warnings of more volatility that if his trade talks falter.

The post-election rebound saw the FTSE 100 extend Friday’s gains, also boosted by the US-China ‘phase one’ trade deal.

The leading index closed 165 points or 2.25% higher at 7,519. This followed a 1.1% rally on Friday which left the blue-chip index on a four-month high.

The mid-cap FTSE 250 gained 1.9% or 413 points to 21,920, a record high, having surged 4% on Friday.

The Conservatives’ 80-seat majority triggered one of the pound’s biggest ever rallies and European stock markets joined the bullish mood, reaching all-time highs.

However, sentiment mellowed in early trade today as Mr Johnson re-booted the prospect of a ‘no deal’ Brexit by suggesting it would be the outcome if the EU failed to agree terms by the December 2020 deadline. The FTSE 250 was down 1.6% at 9am.

Nigel Green, chief executive and founder of deVere Group, said: “When Britain leaves on January 31, there will be only 11 months to thrash out the basics of the future relationship with the European Union.

“The self-imposed end of December 2020 deadline is a mammoth challenge or Britain will fall through the ‘trap door’ of no-deal Brexit on January 1 2021.”

The Prime Minister could request another extension for the transition period, although he is putting forward plans on Friday to legislate against moves for another extension.

As things stand the government has until 1 July 2020 to agree with the EU a one-off extension, until the end of 2021 or 2022. Mr Green said this is unlikely. “I don’t believe that Johnson will use his significant majority to slow down or soften – the Brexit process.  

The task ahead is monumental. The time frame in which to complete it is narrow.

– Nigel Green, de Vere

“Instead, his assumption from the election outcome will be that people want quick, easy answers.

“The task ahead is monumental. The time frame in which to complete it is narrow. Failure to agree a free trade deal by the end of next year will mean the UK crashing out of the EU and all the far-reaching negative economic implications, including the likelihood of a recession.

“With such uncertainty, following the election bounce, in 2020 investor confidence in the UK is likely to remain subdued and Boris Johnson’s Brexit stance could be a major source of volatility in financial markets. Despite the markets currently surging, investors must avoid complacency.”

Among stocks enjoying a bounce yesterday was Sports Direct which soared 31% after reporting better than expected half-year profits, while banks and mining stocks also progressed.

Investment trusts also benefited. Majedie Investments whose fund manager is replacing Invesco at Edinburgh investment trust, leaped 9% or 22p to 265p.

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