Banks see 15-35% chance of Scottish independence

Citi on Wednesday predicted a 35% chance of Scottish independence in the next 10 years, while Credit Suisse said on Tuesday an SNP majority would materially increase the chances of a second referendum over the next 12-24 months. "In this scenario, UK assets would need to start pricing in a political risk premium for a potential breakup of the UK," the Swiss investment bank told its clients.

Investment bank Morgan Stanley has put the chance of Scottish independence from the UK at 15%, while rival Citi put it as high as 35% on Wednesday, as analysts were poised for crucial elections next week where the issue will be center-stage. Scotland holds its parliament election on May 6, and the SNP, which has run the Scottish government within the United Kingdom since 2007, is hoping the vote will deliver support for a new referendum. Scottish voters narrowly rejected independence in a referendum in 2014. The Greens, who support independence, are expected to pick up seats in parliament as well.

"With the pro-independence parties likely to secure a majority in the May 6 Holyrood election, we see a 15% chance of independence," Morgan Stanley said in a research note, adding there was a higher 30% chance that a new referendum would be held. Any plans for a new vote on the future of the union could usher in another volatile period for Britain's financial markets, which are still dealing with the fallout from the more-than-four-year squabble over the UK's exit from the EU.

Opinion polls in Scotland point to a persistent, though narrowing, majority in favor of leaving the 300-year-old United Kingdom. Scottish voters opposed Britain's exit from the EU, and some blame London for bringing them out of the bloc against their will. Given the time it would take to stage a new referendum and negotiate separation, Morgan Stanley said the earliest plausible date for independence would be Jan. 1, 2025.

Other financial institutions are also sizing up the issue. Citi on Wednesday predicted a 35% chance of Scottish independence in the next 10 years, while Credit Suisse said on Tuesday an SNP majority would materially increase the chances of a second referendum over the next 12-24 months.

"In this scenario, UK assets would need to start pricing in a political risk premium for a potential breakup of the UK," the Swiss investment bank told its clients. The pound had particularly suffered a bout of nerves in 2014 as the first independence referendum approached, sinking over 6% in the two months running up to the vote and rebounding 3% after Scots voted to stay put.

It also saw major jostling from firms at the time. Asset manager Standard Life suggested it would move its headquarters to England if Scotland voted for independence. Standard Life Aberdeen, formed after Standard Life merged with Aberdeen Asset Management in 2017, said on Wednesday it was "too early to have any clarity" on possible plans if Scots do vote for independence.