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UPDATE 2-British markets spooked by poll showing Scots may vote to break up UK
September 8, 2014 / 12:45 PM / in 3 years

UPDATE 2-British markets spooked by poll showing Scots may vote to break up UK

* Sterling, shares and bonds fall; banks brace for Scotland vote

* Britain scrambles to offer more powers to Scots

* Unionist campaign criticised as negative and complacent

* Nationalists claim momentum ahead of Sept. 18 vote (Adds rising cost of insuring bank debt, investor comment)

By Guy Faulconbridge and Angus MacSwan

LONDON/EDINBURGH, Sept 8 (Reuters) - British financial markets tumbled on Monday after an opinion poll showed for the first time this year that Scots may vote for independence in a referendum next week, breaking up the United Kingdom.

The survey prompted concern bordering on panic among Britain’s ruling elite, with Prime Minister David Cameron’s Conservative-led government promising proposals this week to grant Scotland greater autonomy if it stays.

Cameron’s job would be on the line if Scots vote on Sept. 18 to secede, less than eight months before a national election planned for May. His spokesman said on Monday the government was not making contingency plans for the possibility of Scottish independence.

Sterling fell more than 1 percent - its biggest one-day drop in 13 months - to $1.6141, long-dated government bonds tumbled and 3.5 billion pounds ($5.7 billion) was wiped off the market value of six London-listed companies with large exposure to Scotland.

“Be afraid, be very afraid,” Deutsche Bank analysts said in one of a flurry of notes by banks to investors outlining the risks to the U.K. economy and European unity of Scottish independence.

Unionists played down the market moves. Alistair Darling, a former finance minister who leads the unionist ‘Better Together’ campaign said it was natural in the run-up to a vote. “For as long as there’s uncertainty, you will get a bit of jitteriness in the system,” he told reporters in Edinburgh.

After months of polls showing nationalists heading for defeat, the survey by the respected YouGov pollster raised the real prospect that secessionists could achieve their goal of breaking the 307-year-old union with England.

Polls indicate Scots have been irked by a perceived scare campaign by unionists while pro-independence Scottish First Minister Alex Salmond appeared stronger than Darling in a television debate on Aug 25. The next poll, a TNS opinion survey on Scotland is due to be published at 2301 GMT.

If Scotland voted to leave the United Kingdom, Cameron would face calls to quit before the general election, while the opposition Labour party’s chances of gaining a majority could be scuppered if it lost its 40 Scottish lawmakers.

Cameron, who visited Queen Elizabeth in Scotland on Sunday, has insisted he will not resign. British media quoted a palace source as saying the monarch was concerned and had asked for daily updates on the situation.

A vote for independence by Scotland’s 4 million voters would be followed by negotiations with London on what to do about the pound, the $2.1 trillion national debt, North Sea oil and the future of Britain’s nuclear submarine base in Scotland ahead of independence pencilled in for March 24, 2016.

BETTER TOGETHER?

With less than two weeks to go before the Sept. 18 vote, the poll put the “Yes” to independence campaign on 51 percent against “no” camp on 49 percent, excluding undecided voters, overturning a 22-point lead for the unionist campaign in just a month, the Sunday Times said.

Less than 12 hours after the poll was released, Britain’s second most powerful man promised on national television that plans would be set out to give Scotland more autonomy on tax, spending and welfare if Scots vote against independence.

“You will see in the next few days a plan of action to give more powers to Scotland,” finance minister George Osborne said.

It was unclear if Osborne was promising additional powers or a discussion of devolution that Britain’s political parties have long been offering Scotland if it votes to stay in the union.

But the comments were cast as panic by Scottish First Minister Alex Salmond, leader of the Scottish National Party (SNP), who said the campaign to save the union was spiralling into self-destruction.

He scoffed at last-minute offers of greater autonomy for Scotland from London parties, saying: “I’ve no doubt they’ll cobble together something because having failed to scare the Scottish people, the next step is to try to bribe us.”

Labelled “Project Fear” by nationalists, the unionist campaign has drawn criticism from many unionists who say it has been complacent, negative and riven by divisions.

“The campaign so far has been narrow and negative,” said Henry McLeish, a former Scottish first minister from the Labour party. “It’s also been patronising and its really lacked emotion, lacked passion and lacked soul so therefore in a country like Scotland where the heart and head are to be taken together, that’s been a major deficiency.”

The apparent surge in support for independence could alarm unionists and thus push more people out to vote. The last survey to show backing for independence was a Panelbase poll commissioned by the Scottish National Party in August 2013 that put it at 44 percent versus 43 percent and 13 percent undecided.

People close to Cameron say he does not want to go down in history as the prime minister who lost Scotland. But he has conceded that his privileged background and centre-right politics mean he is not the best person to win over Scots, usually more left-wing than the English.

That has left the opposition Labour party with much of the burden of trying to convince Scots not to break the union.

Touring Scotland to rally the unionist vote, former Labour Prime Minister Gordon Brown declared: “The truth is Scots would be entering an economic minefield under the SNP’s economic plans for separation.”

KNIFE EDGE

British newspapers headlined the biggest domestic threat to the United Kingdom since Irish nationalists created a breakaway republic almost a century ago.

“Scots vote chaos - Jocky Horror show,” read the front page of the Sun, Britain’s most read daily, while the right-wing Daily Telegraph declared on “Ten days to save the Union”.

In Scotland, the pro-union Scotsman cautioned against a panic reaction and some investors said the sell off over Scottish independence fears was overdone.

“A strong bounce in sterling is likely on a ‘No’ vote, which is still very much the most likely outcome,” said Trevor Greetham, a fund manager at Fidelity. “In the event of a ‘Yes’, things would get messier.”

The FTSE 100 Index of blue chip companies fell as much as 1.2 percent, dragged down by Babcock, Lloyds Bank, Royal Bank of Scotland, Standard Life , energy group SSE and Weir group.

The cost of insuring against default by banks with significant Scottish exposure, such as Lloyds and RBS, rose. The so-called credit default swap on 82 percent state-owned RBS had the second biggest daily rise this year, according Markit prices.

Banking industry sources told Reuters last week that Lloyds is considering moving its registered offices to London if Scots vote for independence. RBS is also examining its options.

The two banks have warned that an independent Scotland would present a significant risk to their businesses, impacting their funding, tax and compliance costs.

Nationalists accuse London of squandering Scottish wealth and say that Scotland would be one of the world’s richest countries if it took control of its own destiny.

Unionists, including Britain’s three main political parties, say the United Kingdom is stronger if it stays together and that Scottish independence would bring significant financial, economic and political uncertainty. (1 US dollar = 0.6187 British pound) (Additional reporting by Sarah Young, Andy Bruce, Kate Holton, Kylie MacLellan, Patrick Graham, Jamie McGeever, Matt Scuffham and Atul Prakash; editing by Philippa Fletcher)

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