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11-09-2014, 05:54 AM
Financial fears over Scottish independence
AFP SEPTEMBER 11, 2014 5:15AM
News that Scotland's pro-independence campaign has overtaken the Stay Together camp for the first time, ahead of next week's referendum, has sent shockwaves through London financial markets.
A surprise opinion poll caught many investors off-guard when it showed that Scotland's "Yes" campaign has carved out a two-point lead over the "No" camp, sparking a scramble for votes before the September 18 referendum.
The British pound tumbled Wednesday to a 10-month low at $US1.6052, a level last seen in November 2013. It also slid against the euro as risk-averse investors sold off positions.
Share prices of companies with major Scottish operations -- like Royal Bank of Scotland and Lloyds Banking Group -- have also fallen sharply since Friday.
There are "huge uncertainties about the costs of separation, the impact on growth and the currency regime for an independent Scotland", Rabobank analyst Jane Foley said.
In addition, she highlighted speculation that the date of Britain's general election -- due in May 2015 -- could be moved, given the possible need to make electoral changes.
The pro-independence governing Scottish National Party (SNP) -- led by First Minister Alex Salmond -- is chasing the "Yes" vote. Britain's main political parties are all in the "No" camp.
Prime Minister David Cameron's Conservative-Liberal Democrat coalition government has vowed that an independent Scotland will not be allowed to keep using the pound.
As the independence campaign has gained momentum since July, the pound has shed about 6.6 per cent of its value against the US dollar.
"There is now no question that the momentum is now all with 'Yes'," Deutsche Bank foreign exchange strategist Oliver Harvey said.
"The implications of a 'Yes' vote would be huge, and are magnified by the sense of institutional unpreparedness," he added, noting the Treasury has only just set up a special team.
"On the currency side, it could at worse lead to a destabilising crisis in the whole British banking system and at best leave the rest of the UK with an unstable currency union in which the Bank of England (BoE) is forced to continue to provide liquidity to Scottish banks."
The British central bank has however drawn up contingency plans for a Scottish separation.
But BoE governor Mark Carney repeated Tuesday his opposition to any form of monetary union with an independent Scotland, arguing that "a currency union is incompatible with sovereignty".
Markets remain anxious about reported capital outflows from Scotland.
"We are already reading reports of capital flowing out of Scotland as uncertainty continues to rise," CMC Markets analyst Michael Hewson said.
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, said clients had not shown signs of pulling money out.
"Nothing will change in the short term on September 19, so investors will have time to assess the consequences of the vote and to act accordingly," he told AFP.
AFP SEPTEMBER 11, 2014 5:15AM
News that Scotland's pro-independence campaign has overtaken the Stay Together camp for the first time, ahead of next week's referendum, has sent shockwaves through London financial markets.
A surprise opinion poll caught many investors off-guard when it showed that Scotland's "Yes" campaign has carved out a two-point lead over the "No" camp, sparking a scramble for votes before the September 18 referendum.
The British pound tumbled Wednesday to a 10-month low at $US1.6052, a level last seen in November 2013. It also slid against the euro as risk-averse investors sold off positions.
Share prices of companies with major Scottish operations -- like Royal Bank of Scotland and Lloyds Banking Group -- have also fallen sharply since Friday.
There are "huge uncertainties about the costs of separation, the impact on growth and the currency regime for an independent Scotland", Rabobank analyst Jane Foley said.
In addition, she highlighted speculation that the date of Britain's general election -- due in May 2015 -- could be moved, given the possible need to make electoral changes.
The pro-independence governing Scottish National Party (SNP) -- led by First Minister Alex Salmond -- is chasing the "Yes" vote. Britain's main political parties are all in the "No" camp.
Prime Minister David Cameron's Conservative-Liberal Democrat coalition government has vowed that an independent Scotland will not be allowed to keep using the pound.
As the independence campaign has gained momentum since July, the pound has shed about 6.6 per cent of its value against the US dollar.
"There is now no question that the momentum is now all with 'Yes'," Deutsche Bank foreign exchange strategist Oliver Harvey said.
"The implications of a 'Yes' vote would be huge, and are magnified by the sense of institutional unpreparedness," he added, noting the Treasury has only just set up a special team.
"On the currency side, it could at worse lead to a destabilising crisis in the whole British banking system and at best leave the rest of the UK with an unstable currency union in which the Bank of England (BoE) is forced to continue to provide liquidity to Scottish banks."
The British central bank has however drawn up contingency plans for a Scottish separation.
But BoE governor Mark Carney repeated Tuesday his opposition to any form of monetary union with an independent Scotland, arguing that "a currency union is incompatible with sovereignty".
Markets remain anxious about reported capital outflows from Scotland.
"We are already reading reports of capital flowing out of Scotland as uncertainty continues to rise," CMC Markets analyst Michael Hewson said.
However, Tom McPhail, head of pensions research at Hargreaves Lansdown, said clients had not shown signs of pulling money out.
"Nothing will change in the short term on September 19, so investors will have time to assess the consequences of the vote and to act accordingly," he told AFP.