Salvation for Scotland - disaster for the pound

Salvation for Scotland - disaster for the pound

8 September 2014, 10:07
Alice F

The pound sterling could drop more than 10%. This week was the worst for the UK currency in more than a year and lead for "yes" campaign could accelerate slide. Nervous traders have already begun to sell the pound in response to narrowing polls.

The Guardian: Scottish independence is expected to knock up to 10% off the value of sterling, taking it back to levels last seen when Britain was in recession. Last week was the worst for the currency in more than a year. Analysts said on Sunday that a lead for the yes campaign was only going to accelerate the slide.

Chief economist at the consultancy IHS Global Insight, Howard Archer said: "Sterling will highly likely remain vulnerable now until the referendum on 18 September. Just how difficult the pound's coming week will be depends on what polls show over the coming days."

Fears that not only Scotland but also England, Wales and Northern Ireland will suffer from several years of uncertainty have surfaced in recent weeks in response to narrowing polls.

Negotiations over a split, with the focus on Scotland's use of the pound, are expected to take several years and lead to much uncertainty in the business community on both sides of the border.

Further details from the chancellor George Osborne on the extra tax and spending powers of a Scottish parliament following a no vote could steady the currency, though only if the polls show "devo max" has the potential to wins back votes from the yes campaign.

For much of July the pound traded higher than $1.70, but it has since fallen back to nearer $1.63. Another 10-cent fall is expected if a yes vote becomes likely.

Rob Wood, chief UK economist at Berenberg bank, said that like many in the City he was confident a deal could be reached in the event of a yes vote, but the pain for both sides could be considerable.

Referring to comments by Standard Life and Royal Bank of Scotland bosses, he said: "Some financial firms may move headquarters and parts of their business south."

"Long-term, Scotland would be forced into austerity. For the rest of the UK, losing relatively pro-EU Scotland would raise the risk of 'Brexit' from the EU as well as questions what it could mean for the outcome of the May 2015 general election," he said.

Share it with friends: