Global investment firm BlackRock, which controls about £2.5 trillion in assets, will warn of “major uncertainties, costs and risks” in a study into Scottish independence due to be published tomorrow.
Following warnings that Scotland would not be welcome in a currency union, BlackRock’s analysts say a new currency would be the best option should Scots vote to leave the UK on 18 September.
“Scotland would have the best chances of operating under monetary policy conditions and an exchange rate suited to its economy,” the report says.
“After Scotland established its monetary credentials, there could be advantages to operating the currency as a managed float – its value could be linked to the currencies of its main trading partners and the price of oil.
“Scotland could choose to adopt the euro later, or to operate a more freely floating currency.”
Nevertheless, the report is clear that any new sovereign government in Holyrood will find itself needing to borrow substantial amounts of money to finance its spending plans, and will be punished by the bond markets for doing so.
“Scotland’s fiscal position is weak – even with the most generous allocation of North Sea oil revenues,” it states.
The study found that promised tax cuts and a “greying population” mean Scotland would not run a fiscal surplus any time soon unless it benefits from an unexpected spike in oil prices.
In the meantime it would be forced to issue its own debt – so called “kilt-edged” securities – which would have to offer higher yields and shorter maturities than UK gilts. Holyrood’s debt rating would almost certainly be lower than the UK’s.
The authors said: “The country’s likely high debt, fiscal deficit, weak economic growth, lack of institutional frameworks and low foreign currency reserves suggest a higher than normal debut sovereign yield spread.”
However, BlackRock’s experts calculate that an independent Scotland would probably generate enough domestic savings to finance any over-spending by the public sector, so those higher yields might go straight into the pockets of Scottish savers and pensioners.
The report concludes that fears that an independent Scotland would be hostile to business are unfounded. The Scottish Government would have little choice but to try to woo investment, with moves such as a cut in corporation tax.
And thanks to the energy sector, Scotland would have a healthier trade balance than the UK – recent figures show it actually had a surplus of about 3 per cent.