Pound still down as investment banks weigh in with bleak outlook for Scottish independence

An independent Scotland may face 'deep recession', economists warn.

by Elizabeth Anderson
Last Updated: 12 Sep 2014

The pound remained under pressure this morning, dropping to a fresh 10-month low against the dollar, as uncertainty about Scottish independence continues ahead of next week’s referendum.

Sterling fell to $1.6065 in early morning trading, the lowest since November last year, but had levelled out to $1.6108 mid morning. It remained steady against the euro at 1.2498.

The pound dropped to $1.6112 on Monday after a shock Yougov poll put the 'yes' campaign in the lead. Today the pound took a fresh hit as uncertainty remained, and as a new poll from TNS suggested the ‘yes’ and ‘no’ camps were neck and neck.

Swiss bank Credit Suisse added to investors’ woes, predicting that Scotland would slump into a ‘deep recession’ if it becomes independent from the rest of the UK.

‘Should the Bank of England move to guarantee Scottish deposits, we expect it to extract a high fiscal and regulatory price (probably insisting on a primary budget surplus. The re-domiciling of the financial sector and UK public service jobs, as well as a legal dispute over North Sea oil, would further accelerate any downturn. In our opinion, as North Sea oil production slows, we estimate that the non-oil economy would need a 10% to 20% devaluation to restore competitiveness. This would require a 5% to 10% fall in wages, driven by a steep rise in unemployment,’ Credit Suisse said, as reported in the Financial Times.

Scottish companies including RBS and SSE were among the biggest fallers on the FTSE 100 yesterday, but had recovered today.

Meanwhile Gordon Brown is the unlikely figure leading the political fight against independence. The former prime minister is leading Scottish Labour's drive to stay on top of the independence debate with further proposals to devolve powers to the nation and to persuade voters sitting on the fence.

'The choice is now between irreversible separation, or voting for a stronger Scottish parliament. We are talking about a big change in the constitution. It's like home rule in the UK. We would be moving quite close to something near to federalism in a country where 85% of the population is from one nation. Change is in the air and change is coming,' he said, according to the Guardian.

The Yes campaign argues that independence will allow greater freedom for people living in Scotland  but has yet to make a convincing case for the economics of independence, opinion polls suggest.

PMQs have been scrapped tomorrow as all three leaders head to Scotland to fight for keeping the union in place.

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