LONDON--The British pound and U.K. stocks surged on Friday after
Scotland voted to stick with the rest of the U.K., reviving
international investors" appetite that had waned amid uncertainty
in recent weeks.
Shares in Royal Bank of Scotland Group PLC and Lloyds Banking
Group PLC, which both have substantial exposure to Scotland,
soared.
The pound, which slumped earlier this month when opinion polls
suggested the referendum would be a close vote, rushed to a
two-week high of $1.6526 as results trickled in during Asian
trading hours. It also hit a more than two-year high against the
euro.
"There will be collective sigh of relief as a period of huge
uncertainty has been avoided," said Alan Wilde, head of fixed
income at Baring Asset management. "This will calm markets, which
had become increasingly nervous in the last few weeks."
Analysts said the pound may climb to $1.66, but some thought
gains would be hard fought, particularly since it rallied Thursday
in the immediate run-up to the vote. "The pound's better than the
euro, but has already gone a long way, and is not going to hold
these levels against the dollar," said Kit Juckes, a currencies
analyst at Société Générale in London.
The FTSE 100 index rose 0.7% in early trade to 6,864--its
highest level in around two weeks.
"While the decision is in line with most people's central
expectation--including our own--the removal of the risk of a U.K.
breakup is nevertheless positive for U.K. assets," said Kevin Daly,
an economist at Goldman Sachs.
But Bill O'Neill, head of investment office U.K. at UBS Wealth
Management said that any relief rally, might be more limited than
some expect. "Investors decided early on in this campaign that
there would be a "No" victory, and confidence returned to the
markets well before voting day," he said. "There will be a relief
rally, but it will be limited because the market has not
aggressively accounted for a "Yes" vote," he added.
The yield on the two-year Gilt, or U.K. government bond, was at
0.90%, 0.03 percentage points higher on the day, reflecting
strengthened expectations that the Bank of England will raise
interest rates in early 2015. Yields rise as bond prices fall.
Thursday's rally wasn't limited to the U.K. Spanish bonds led
the way as riskier eurozone bonds rallied. The yield on the
country's 10-year bond fell 0.1 percentage point to 2.18%, the
lowest since Sept. 9. Spanish debt has suffered in recent weeks as
investors fretted that a vote for Scottish independence could boost
separatist movements inside Spain, with Catalonia planning its own
breakaway referendum. Spain's Ibex stock index rose 1.5%.
Ira Iosebashvili, Rebecca Howard and Anjani Trivedi contributed
to this article.
Write to Ira Iosebashvili at ira.iosebashvili@wsj.com and
Rebecca Howard at rebecca.howard@wsj.com
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