Independent Scotland to get “A” rating: Moody’s

03 May 2014


A  vote in favour of independence from the UK in the Scottish referendum was not likely to have any impact on the UK's rating, though it could result in Scotland being downgraded to an "A" according to reports by Moody's Investment Service.

The service released a series of reports yesterday that warned of ''significant uncertainties'' associated with Scottish arrangements in the event of independence, made an "A" rating the most likely outcome.

However, the ratings service added that with time, ''greater clarity'' and confidence in Scotland's institutional structure and evidence that steps had been taken to address longer-term fiscal issues could make higher rating levels more attainable.

According to Moody's due to Scotland's investment grade profile, and the small size of its economy as against the remainder of the UK, any credit impact of independence on UK creditworthiness was ''likely to be limited.''

''Any division of revenues from North Sea oil would be largely credit neutral for the UK sovereign given that they are small, and declining, relative to the size the UK economy,'' said Moody's.

The Department for Work and Pensions warned last week, that an independent Scotland would have to foot a mounting welfare bill, as conversations about the country's financial ability had increased in the run up to September's referendum on independence. 

The report said, "An 'A' rating is the most likely at the outset, but with risks of a confidence outcome tilted to the downside."

Scottish independence MPs had said there would be no currency union with an independent Scotland

Although conceding that a higher rating over the longer term could be achieved by Scotland the ratings agency also concluded that the currency union proposed by first minister Alex Salmond would not be in the best interests of the UK. Salmond had proposed that independent Scotland would keep the pound but retain control over fiscal policy.

It said, "If Scotland were to retain the pound sterling as its currency and the Bank of England as its central bank, this would be credit negative for the remainder of the UK, regardless of the institutional arrangements that are put in place."

The leaders of the three main political parties in Westminster in a categorical statement said they would not enter a currency union with an independent Scotland.

Better Together, the group arguing for a "No" vote in September's referendum described the report as "devastating" for the Yes campaign.

According to former chancellor and Better Together leader Alistair Darling, this was an absolutely devastating report for the nationalists.

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