Pound slumps to 10-month low after Scottish yes campaign takes poll lead

Alex Salmond answers questions

The pound has slumped to a 10-month low after the yes campaign took the lead in the opinion polls just 10 days before the Scottish independence vote.

Westminster leaders will on Monday scramble to agree an offer of more powers to Scotland if it remains within the union in an effort to prevent a yes vote in next week's referendum.

But what the chancellor, George Osborne,'described as "a credible timetable and process" to develop further devolved powers did not prevent a wave of early selling on the foreign exchanges on Monday morning.

Sterling fell sharply, losing almost one and a half cents against the US dollar to reach $1.618, the lowest level since November 2013.

The surge of support for independence also sent jitters through the stock market, as shares in companies with large Scottish interest suffered sharp falls in early trading.

Royal Bank of Scotland was the biggest faller in the FTSE 100, down more than 3% in early trading. Energy group SSE (Scottish & Southern Electricity) fell 2.5%, Lloyds Banking Group dropped 2.2%, Standard Life was down 2% and Aberdeen Asset Management fell 1.5%.

The FTSE 100, which last week reached a 14 year high, was down 18 points, at 6837.

The surge in support for the pro-independence campaign in recent days has rattled the financial markets, wiping 3.5% off the value of the pound in the last month. Until recently, many analysts were confident that the no side would win the vote on 18 September, but Sunday's YouGov poll – showing the yes side leading for the first time – has shifted perceptions.

Uncertainty over what currency an independent Scotland would use, the future of its financial sector, and what share of the UK national debt it would take on are all pushing down the value of the pound.

Rob Wood, UK chief economist at Berenberg, fears that a yes vote would cause "some serious short-term pain".

"Some financial firms may move headquarters and parts of their business south. More importantly, uncertainty about currency arrangements and the status of Scotland in the EU would spike immediately," Wood said.

The pound could slide further on markets if Scotland does vote for independence, Michael Hewson of CMC Markets warned.

"One thing is certain, if we get this sort of volatility on the prospect of a yes vote, can you imagine the reaction if we do get a yes vote? It's not likely to be pretty.

The rush to make a new offer on devolution, promised within hours of publication of the shock poll result on Sunday, triggered accusations of panic and bogus bribes.

Osborne said the Conservatives, Labour and the Liberal Democrats would agree to discuss proposals involving "much greater" fiscal autonomy for Scotland. The details could be announced as soon as Tuesday.

Offering Scotland more power over tax rates, spending and welfare, the proposals would be ready for implementation in the first Westminster parliamentary session after the 2015 general election, the chancellor added.

No campaign sources said the move to set out this process just 11 days before the vote had long been planned, though it emerged the morning after a YouGov poll for the Sunday Times showed a two-point lead for yes, once undecided voters were eliminated.

Alistair Darling, the leader of the Better Together campaign, said he always expected the polls to narrow close to the referendum, saying: "We are in the position now when every voters could potentially tip the balance."

He refused to go into any detail of what the British party leaders would offer, saying: "The additional powers coming to the Scottish parliament was announced by the party leader north and south of the border some time ago. People have said they want to know the process and timetable and that is something that is going to be announced this week."

He acknowledged that the no campaign needed to appeal to the heart as well as the head but argued the big question is what impact separation would have on family finances and whether Scottish people would be able to afford the NHS and pensions.

Earlier the former Labour first minister Henry McLeish criticised the tone of the pro-union campaign.

He told BBC Radio 4's Today programme: "I am voting no … [but] I have been a critic of the campaign so far and that has really been for two reasons; one is tone, the campaign so far has been narrow, it's been negative.

"It's also been patronising. It's really lacked emotion, lacked passion and lacked soul."

The referendum was likely to have been the dominating topic as David Cameron spent the weekend at Balmoral, though Buckingham Palace reiterated the Queen remained neutral on the subject. She will be in Scotland on the day of the vote but the palace said that was part of her normal schedule.

The Osborne initiative had a shaky start when the Scottish secretary, Alistair Carmichael, was forced to counter the impression left by the chancellor that the package itself would include greater devolution of powers than already agreed by the parties in a joint statement in June.

Labour, the Lib Dems and the Tories have differing devolution packages, and this week's initiative is designed to remind voters of the commitment to so-called devo max, as well as the process that guarantees it is delivered.

"The aim is to make sure the Scottish people believe this package is credible, has a timetable and will be delivered on," said one Scottish government source. Scotland's first minister, Alex Salmond accused Osborne of "a panicky last-minute measure because the yes campaign is winning on the ground". He added: "The evidence for that is overwhelming."

He said: "We're expected to believe that secretly, behind the scenes, after hundreds of thousands of people have already voted, there is a radical new deal on the constitution that is agreed by the Westminster parties. Well, there is a radical new deal on the constitution – it's called independence."

Cameron knows his own future as prime minister may lie in the hands of Scottish voters. Although he has insisted his own career is not on the ballot paper, he knows he will be blamed by some of his own party for pressing ahead with the high-risk referendum.

For Labour, the prospect of the permanent loss of as many as 40 Labour MPs representing Scottish seats would be "a disaster", the former Labour cabinet minister David Blunkett openly admitted on Sunday.

Labour politicians fear the vote for separation is in part driven by a disillusionment with politics among core Labour voters, as a well as pessimism about Labour's chances of being elected in 2015. Gordon Brown claimed Labour had for some weeks been pressing for a more definitive statement about the timetable for the delivery of extra powers.

He said: "I think when people see the full scale of the powers the Scottish parliament will have, and our ability to do things while retaining the benefits of the UK, including the currency, I think they are going to decide on the extended powers of the Scottish parliament within the UK."

Brown added: "I hope the other parties will support what is a Labour proposal, a Labour initiative, so that these powers are guaranteed, and so a no vote doesn't mean nothing happens, a no vote means we move quickly to the delivery of extra powers."

He is due to launch a six-day, 30-destination tour of Scotland's heartlands aimed at convincing undecided voters of the case for a patriotic no vote.

If Scots vote yes …

• Alex Salmond will confirm his "Team Scotland" of negotiators – expected to include his deputy, Nicola Sturgeon, along with senior cross-party figures – within a week or so. David Cameron, if he has ridden out calls for his resignation, will set up a similar negotiating team for the remainder of the UK.

• To minimise market instability and avoid a run on the pound, Cameron must confirm quickly the UK's stance on the status of sterling and the splitting of debt with Scotland. Other subjects for immediate discussion would include dividing up oil and gas reserves.

• All 28 EU states are expected to meet by the end of 2014 to give the European commission a mandate to investigate Scotland's EU membership. Salmond must also begin talks with Nato. Both situations are without precedent and the negotiations are likely to be complex and protracted.

• Before the general election campaign begins in earnest, the UK parties will have to decide what role Scotland's 59 MPs at Westminster will have after May 2015. They will technically remain in the House of Commons, but only until independence day.

• Salmond has set midnight on 23 March as the target date to declare Scotland an independent country. Holyrood will then be dissolved for the first elections to an independent parliament.

Powered by Guardian.co.ukThis article was written by Graeme Wearden and Patrick Wintour, for theguardian.com on Monday 8th September 2014 09.03 Europe/London

guardian.co.uk © Guardian News and Media Limited 2010

 

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