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| Scottish independence: Foreign investors desert British economy amid fears of 'yes' vote | Scottish independence: Foreign investors desert British economy amid fears of 'yes' vote |
| (about 3 hours later) | |
| Major global investors have been pulling billions of pounds out of the British economy due to fears that Scotland could vote “yes” to independence. | Major global investors have been pulling billions of pounds out of the British economy due to fears that Scotland could vote “yes” to independence. |
| Figures from investment bank Societe Generale showing an apparent flight of investors from the UK came as Japan’s biggest bank, Nomura, urged its clients to cut their financial exposure to the UK and warned of a possible collapse in the pound. It described such an outcome as a “cataclysmic shock”. | Figures from investment bank Societe Generale showing an apparent flight of investors from the UK came as Japan’s biggest bank, Nomura, urged its clients to cut their financial exposure to the UK and warned of a possible collapse in the pound. It described such an outcome as a “cataclysmic shock”. |
| Sterling has fallen sharply since the shock poll at the weekend suggesting a narrow “yes” vote was on the cards. It fell again today until the governor of the Bank of England gave a speech to unions which investors took as suggesting he was eyeing an interest rate rise. | Sterling has fallen sharply since the shock poll at the weekend suggesting a narrow “yes” vote was on the cards. It fell again today until the governor of the Bank of England gave a speech to unions which investors took as suggesting he was eyeing an interest rate rise. |
| But investors have been pulling out for weeks and months, according to data on UK stock market funds cited by Societe Generale, which show a worsening exodus of global money from shares in British companies. From its best position this year of a little under $14bn (£8.6bn) flowing out from the UK earlier this year, the flight has accelerated to nearly $20bn (£12bn). | But investors have been pulling out for weeks and months, according to data on UK stock market funds cited by Societe Generale, which show a worsening exodus of global money from shares in British companies. From its best position this year of a little under $14bn (£8.6bn) flowing out from the UK earlier this year, the flight has accelerated to nearly $20bn (£12bn). |
| The UK position is particularly marked when set against European investments, where the flow of money in has accelerated sharply since the worse days of the Eurozone crisis. The amount in funds invested into the UK is still far lower than they it was at their 2007 peak. Societe Generale analysts told clients in a report today that this could worsen with the prospect of Scotland seceding. They add that concerns about the UK leaving the European Union were also triggering a flight from Britain. | The UK position is particularly marked when set against European investments, where the flow of money in has accelerated sharply since the worse days of the Eurozone crisis. The amount in funds invested into the UK is still far lower than they it was at their 2007 peak. Societe Generale analysts told clients in a report today that this could worsen with the prospect of Scotland seceding. They add that concerns about the UK leaving the European Union were also triggering a flight from Britain. |
| Scotland's First Minister Alex Salmond (front C) poses with supporters of the 'Yes Campaign', in Edinburgh Nomura’s advice to clients such as giant pension funds was not only to pull money out of British investments, but to take out bets against British Government bonds and UK banks’ share prices. | |
| Jordan Rochester, Nomura’s foreign exchange strategist told The Telegraph that fast-moving hedge funds had started moving out some time ago, but now traditionally longer-term investors like pension funds were also taking flight. “The risks are suddenly seen as much greater for Japanese pension funds,” he said. | Jordan Rochester, Nomura’s foreign exchange strategist told The Telegraph that fast-moving hedge funds had started moving out some time ago, but now traditionally longer-term investors like pension funds were also taking flight. “The risks are suddenly seen as much greater for Japanese pension funds,” he said. |
| The above graphs show money going in and out of the stock markets in Europe and the UK | |
| The celebrated liberal economist Paul Krugman at the weekend warned a vote for Scottish independence would be catastrophic for the country. “The risks of going it alone are huge,” Krugman warned in his New York Times column. “You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.” | The celebrated liberal economist Paul Krugman at the weekend warned a vote for Scottish independence would be catastrophic for the country. “The risks of going it alone are huge,” Krugman warned in his New York Times column. “You may think that Scotland can become another Canada, but it’s all too likely that it would end up becoming Spain without the sunshine.” |
| Mr Krugman’s key concern is the danger of losing control over its currency. He says “the combination of political independence with a shared currency is a recipe for disaster. Which is where the cautionary tale of Spain comes in.” | Mr Krugman’s key concern is the danger of losing control over its currency. He says “the combination of political independence with a shared currency is a recipe for disaster. Which is where the cautionary tale of Spain comes in.” |
| Meanwhile, Deutsche Bank analysts today said a “yes” vote could lead to the Bank of England to keep interest rates lower for longer due to the risk of independence derailing the economic recovery. The Bank may be particularly wary of raising rates due to the likely impact on investment into the UK. On the other hand, the pound would probably fall, leading to concerns about inflation, which the Bank might feel the need to counter with higher interest rates. | Meanwhile, Deutsche Bank analysts today said a “yes” vote could lead to the Bank of England to keep interest rates lower for longer due to the risk of independence derailing the economic recovery. The Bank may be particularly wary of raising rates due to the likely impact on investment into the UK. On the other hand, the pound would probably fall, leading to concerns about inflation, which the Bank might feel the need to counter with higher interest rates. |
| The developments follow comments from the governor of the Bank of England that a currency union with an independent Scotland would be "incompatible with sovereignty". | |
| Mark Carney was asked about the effect of independence on currency union during a question and answer session at the TUC Congress in Liverpool. | |
| He repeated comments he made in Edinburgh earlier this year about the need for the same regulations on standards as well as fiscal arrangements, adding: "A currency union is incompatible with sovereignty." |