Almost $27 billion of financial assets were pulled out of Britain in August in the run up to Scotland’s vote on independence, according to a new report by a London-based consultancy comparing the capital outflow to the Lehman Brothers collapse in 2008.
The financial outflow of 16.8 billion pounds ($27 billion) in August was the biggest since the white heat of the 2008 financial crisis when the US bank Lehman Brothers went bust, according to a CrossBorderCapital report compiled by the consultancy and released on Friday.
“Sterling outflows have been an issue since the end of June, but they really gathered pace in August and now look like intensifying again with the possibility of Scottish independence coming to the front of investors’ minds,” said Michael Howell, the managing director of the CrossBorder Capital.
The consultancy pointed out that the figures also dwarfed the selling of UK assets around the 2010 general election, afrer which there were several days of uncertainty over who would form the government.
Howell added that UK outflow was more than double the combined outflow from Germany and Australia and only Japan is currently seeing a faster rate of capital outflow from the country. This year UK has experienced a net 127 billion pound outflow ($206bn), while in 2013 a net 39 billion pounds ($63bn) flowed into the nation’s economy, he added.
The daily equity flow data pointed to “some of the largest UK equity selling on record, demonstrating investor concerns ahead of the Scottish referendum next week,” said Morgan Stanley on Friday.
Scotland is to vote in a referendum on its independence from Britain on Thursday, with opinion polls displaying a narrow gap between the pro-independence campaigners and those against the exit from the union. The latest ICM/Sunday Telegraph poll showed the biggest ‘Yes’ share of the referendum campaign, with 54 percent reporting an intention to vote ‘yes’ and 46 percent ‘no’.
The new liquidity report comes as the world’s leading investment banks warned of the financial folly Scotland would face if it votes for leaving the 307 year union with the UK.
On Friday, Deutsche Bank issued a paper criticizing independence and saying that it would be one of the greatest historic mistakes ever made.
“A ‘yes’ vote for Scottish independence on Thursday would go down in history as a political and economic mistake as large as Winston Churchill’s decision in 1925 to return the pound to the Gold Standard or the failure of the Federal Reserve to provide sufficient liquidity to the US banking system, which we now know brought on the Great Depression,” said Chief economist David Folkerts-Landau.
Deutsche Bank described the desire for independence as ‘incomprehensible’ saying it will entail negative consequences.
Three retail giants joined the debate in a letter to the Scottish Daily Record newspaper on Friday. Sir Ian Cheshire, of B&Q-owner Kingfisher, Marc Bolland, chief executive of Marks & Spencer, and James Timpson, of cobbler and key-cutter Timpson agreed that consumers north of the border will suffer from the country’s exit
“We are concerned about the greater complexity of trading across a national border coupled with the uncertainty over big issues such as the single currency and membership of the EU,” the joint letter read.
“Within our group there is first-hand experience of trading across national borders – in France, Ireland and across the world. Our experience is that it always leads to more red tape and higher costs and we feel it is important to share this experience.”
“We know that running a separate pricing system in Scotland will mean taking the difficult decision as to whether or not to pass on the increased costs through higher prices to Scottish consumers.”