How much should markets read into the independence polls?

What a difference a poll makes. Only a matter of weeks ago the pro-union campaign was resting on its laurels as the ‘No’ vote showed a comfortable lead across any survey you chose to look at.
 
But now Westminster’s top politicians are rushing to their feet and preparing to offer up last minute additional powers to Scotland with less than two weeks to go before the country changes its future irrevocably, and all based on a single poll.
 
The survey, carried out by YouGov, which appeared in the Sunday Times over the weekend put the number of ‘Yes’ votes ahead of the ‘No’ camp for the first time since campaigning began back in 2012 at 51 to 49 per cent when excluding undecided voters.
 
The news had an undoubted affect on markets. Sterling hit a 10-month low of $1.61 while the euro also rose against the pound following the release of the poll.

Scottish firms, including some of the country’s leading financial institutions, also took a hit earlier this week from the poll with Standard Life falling by 3 per cent in early trading on Monday morning. Lloyds Banking Group and Royal Bank of Scotland also fell by approximately 2.5 and 1.5 per cent respectively throughout Monday.
 
But how much should markets really be reading into the results of a single poll? A number of industry experts and leading research firms have offered up their insights into the voting patterns that typically emerge in the build up to an election or referendum and whether or not these eventually translate into votes on the day.
 
Bank of America Merrill Lynch economist Nick Bate says the recent TV debate between Scotland’s first minister Alex Salmond and leader of the ‘No’ campaign Alistair Darling could have a “powerful impact” on opinions, if history is anything to go by.
 
Support for the Liberal Democrats rose around 30 per cent after trailing far behind the other two leading parties following Nick Clegg’s appearance on a TV debate ahead of the last UK general election, according to Bate.
 
But all too often this last minute surge in support fades almost as quickly as it appeared when it comes to crunch time, he says. In the case of the Liberal Democrats, for example, support “disappeared” in the final vote despite going into election day at 27 per cent.
 
Goldman Sachs senior economist Kevin Daly also said that the gap between the ‘yes’ and ‘no’ camps was likely to continue narrowing following the most recent publication of the investment bank’s poll of polls released last week, but did not predict that support for independence would overtake pro-union voters.

However Daly also pointed out that opinion polling in the UK has a “mixed history in forecasting actual poll outcomes”, adding that the uncertainties specific to the Scottish referendum create a “high risk of a surprise outcome.”
 
He says: “Specific characteristics of the Scottish referendum provide an additional degree of uncertainty (turnout is expected to be unusually high, those aged 16-18 will be able to vote, etc.). We have no strong prior that polls are biased in one direction or another but a relatively high risk of them being biased in either direction implies a relatively a high risk of a surprise outcome.”
 
The polls may have come as a shock but in some ways the market reaction shouldn’t. After all don’t investors always get the jitters in the build up and immediate aftermath of almost any major political vote?
 
However the chances of markets returning to a relative calm as they normally would once the outcome of any vote is known is far less likely in the case of the Scottish referendum. The stakes are much higher, the risks much longer lasting, and the changes permanent.
 
So while the effects of this latest poll may fade as the week progresses – shares in many Scottish firms have already bounced back – the continuing disagreement between the Scottish and UK governments on currency if Scotland votes ‘yes’ coupled by the threat that the country may refuse its share of UK debt has the potential to create a much longer-term downturn in sterling and UK assets.