Monday 8 September 2014

Prospect of is already Independent Scotland already boosting the UK economy as a whole

The Pound has dropped to a low of $1.61 to the Dollar - its lowest for 3 months. it year low is at £1.57 so it is well on the way to being at this level or better with just 10 days until the Scottish referendum result.

The Scottish referendum is the gift that keeps on giving, not only may the UK soon be shot of its Socialist extremists, but also the 20% over value of the Pound (its trade weight is currently 83 against a basket of currencies, this implies a near 20% over-valuation) will come off.

This will cause imports to be more expensive and so drive inflation, but at the same time will help an export sector that has run into a wall in 2014 in the face of an over-expensive currency rate driven not by fundamentals but by the choice of the Pound as a safe haven currency.

Perhaps the loss of Scotland will permanently diminish the Pound (I doubt it really, Scotland is 8% of the economy at most) as a reserve currency. This would have good benefits for the economy with almost no downsides - those only being that larger corporate transactions would have to move to dollars or euro's, but not matter. The status of long-dated gilts will in reality underpin Sterling's utility for decades to come.

Moreover, the FTSE is harmed by the earnings of so many of its companies being in dollars which is then reflected into poor returns due to currency exchange. The move down of the Pound will improve the overall PE ratio of the FTSE. Of course a high priced FTSE will lose some lustre too in the run up to the referendum.

We can only hope this continues and the whole show is not ruined by a 'No' vote in the election on the 19th September which will return us to the status quo position and represent a significant detrimental adjustment.



Lord Blagger said...

And if it doesn't work, we can always follow America's lead.

Invade and steal the oil that is left.

BE said...

Agreed. The £ is very strong against the Euro (still our most important market) and with inflation so low a softening must be a good thing to drag us away from deflation.

Pesto says this is very bad, because rates will rise. So we can just print some more £! Well, south of the border we can.

Keep it up Nicola!

MyScottishName said...

And theres the rub....

Will Scotland weaken or strengthen the pound?

Well firstly, as mentioned, the EU is our most important trading partner. Theres a real 'fog in channel; continent cut off' air to some of the arguments here but the EU is starting QE now and weakening the Euro. The pound has already had its downdraft and so looks to be in the near term defined by Euro moves. Your economy is not in your own hands, any more than Scotlands is in its hands.

As the Euro weakens, sterling will rise relative to it. And, as there is no more room to reduce rates, sterling getting stronger is the only option. This will crucify exports to the EU and likely the US too.
Following on from the Scots vote will come the Euro vote where Britain (England) will complete its suicide by losing a lot of its left wing and lurching toward the right, UKIP, a 'no' vote and Euro exit.
Cue economic and social catastrophe.
Long before that we will see many, many businesses head for the Irish/Dutch exit and (if Salmond gets the corp tax right) many national firms to Edinburgh.

I find it highly amusing that many of the right wing brits are anti-scotland leaving the Union but want UK to leave the Euro.
Its very funny in a socially and politically destructive sense.

God save us from Englishmen and their puffed up chests and stories about the past!

BE said...

Brilliant comment as usual McTootish. Internally consistent AND with incredible insight. Hamish, you do realise that Scotland is voting on leaving the EU, don't you?

CityUnslicker said...

Irish and Dutch exit. A classic. Ireland already has a great tax rate and system - why has the City not decamped to Dublin already?

Electro-Kevin said...


"I find it highly amusing that many of the right wing brits are anti-scotland leaving the Union but want UK to leave the Euro.
Its very funny in a socially and politically destructive sense.

God save us from Englishmen and their puffed up chests and stories about the past!"

All of this could apply in reverse.

I wish we could strip egos and stories out of it all.

Nick Drew said...

Don't you want to hear any more of my stories, then ..?

I can go red in the face, too

a pox on you, sir

Bill Quango MP said...

The stories are the bits I like best.

I've seen a Harrier fly into the sea too, you know.

DJK said...

Pound overvalued? Hardly.

Jer said...

CU - I believe WPP decamped to Dublin. Came back when the CT differential was reduced.

MSN - Do you really think the government and BOE have no tools to weaken the pound?
There are tools, even if you exclude chancellor Ed Balls.

Anonymous said...

Classic Osbourne though. If Scotland votes NO then Red Ed is likely to get in with those perfidious LimpDumb switching - so he can't deliver.

If Scotland votes Yes, then he can claim they are mistaken.

In the very small chance they vote NO and the Conservatives get in, he can always renege as his English MP's will vote against it.

Never accept any promises from that man.

andrew said...

We seem to be getting a bit of a groupthink that the scots are going.

At times like this I become sure we are probably wrong.

Anonymous said...

CU - a lot of UK general insurers (and some life companies) have moved to Dublin. Take a look at your house or motor policy and see where it's underwritten.

Go Scotland !

CityUnslicker said...

Anon - yes, technically they are in ireland I agree - but have not noticed the huge loss of employment in the UK. Name plate transfers are a worry for the treasury and corporate tax, not for much else.

DJK - that graph would be useful if it showed GDP size as well, otherwise it is a bit meaningless, the US has grown much faster than the UK with better productivity improvement too- of course our exchange rate on a fixed basis would fall.

Andrew - I am wishing for a yes, not expecting it.

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