PwC warns of high cost of kilt-edged securities

MAINTAINING investment in the public sector is "key" to driving Scotland's economic recovery - although Holyrood's proposed Scottish bond could prove risky and expensive, experts have warned.

Accountancy firm PricewaterhouseCooper warned that Scottish Government proposals to raise 2 billion through the international bond markets by issuing what has been dubbed as "kilt-edged securities" would give "increased fiscal freedom" but "is not without risks".

Following the Fraser of Allander Institute's quarterly report - which shaved growth 2011 expectations and said the Scottish economy was "teetering on the brink" of stagnation - Paul Brewer, senior partner at PwC, warned that the Greek bond crisis could give investors pause for thought. Although he believed investment would tackle "lacklustre growth", Brewer said: "The eyes of the financial world are on Greece, where the impact of potential default on its sovereign debt will have repercussions well beyond the eurozone and the global financial community.

"For Scotland, the question would be who in the financial world would buy new bonds from the auld country and at what price?"

A Treasury paper from 2007 has argued that investors would require a higher yield on "kilts", which would add to Scotland's borrowing costs.

Fraser of Allander yesterday lowered its Scottish economic growth forecast for 2011 from 0.2 per cent to 0.1 per cent due to factors such as weakening household spending, inflation, and job fears as public spending cuts hit.

Meanwhile the CBI distributive trades survey for June revealed that the balance of retailers reporting an increase in sales plunged to a one-year low.