Are the rats abandoning HMS United Kingdom?

Capital outflows from the UK surge as the Scottish referendum approaches. But is that really the cause?

by Adam Gale
Last Updated: 15 Sep 2014

A report by London-based CrossBorder Capital showed capital outflow from the UK of $27bn in August, as investors sell off British assets. Capital outflows are associated with economic uncertainty and, if this monthly figure is anything to go by, no one currently has a clue what’s going on.

These levels are the highest since the collapse of Lehman Brothers in 2008 - even higher than May 2010, when the UK General Election returned a hung Parliament. In August last year, there were capital inflows of £8.9bn.

The inference seems to be clear: investors are getting seriously spooked by the uncertainty over a possible Scottish exit from the UK. ‘Sterling outflows,’ CrossBorder Capital managing director Michael Howell is reported as saying by Reuters, ‘look like intensifying again with the possibility of Scottish independence coming to the front of investors’ minds.’

It all sounds nice and plausible, until you look the numbers. The report said that the outflow had been $27bn for August (bad), $26bn for July (still pretty bad) and a whopping $206bn so far this year (hardly great, is it?). But the charge of the Scottish Yes Campaign has been a last minute thing. If Scottish independence were the primary cause, then July’s figure and the figure for the year would not be so high.

There has been volatility in the global markets over the summer, not just in the UK. The role of the Russia-Ukraine, Iraq-Syria, and Israel-Gaza crises cannot be discounted by an overly intense focus on Scotland’s impending decision. In either case, it will be telling what happens to the capital markets after the referendum.

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