Bloomberg News - Nowotny Hints at ECB Cutting Forecast as Euro-Area Economy Lags

Photographer: Simon Dawson/Bloomberg

Ewald Nowotny, Governing Council member of the European Central Bank and governor of Austria's central bank.

European Central Bank Governing Council member Ewald Nowotny suggested the institution may cut its economic forecast when it presents an updated estimate next week.

“It’s no secret that we are seeing somewhat of a downturn in the economy,” Nowotny told reporters in Alpbach, Austria, late yesterday. “Germany is no longer able to be a locomotive for growth.”

Recovery in the 18-nation euro area stalled in the second quarter after its three biggest economies failed to grow, with Germany contracting 0.2 percent. Data due later today will probably show that inflation in the region slowed to 0.3 percent this month, according to the median economist forecast in a Bloomberg News survey.

The ECB, which currently predicts economic growth of 1 percent and inflation of 0.7 percent this year, is scheduled to present new staff estimates on Sept. 4.

ECB President Mario Draghi on Aug. 22 warned that investor bets on euro-area inflation this month “exhibited significant declines at all horizons.” Having previously said that a worsening of the medium-term inflation outlook would provide a reason for broad-based asset purchases, his comments fanned investor speculation the central bank will soon deploy more monetary stimulus to ward off Japanese-style deflation.

Nowotny said yesterday that he shared Draghi’s concerns on the economy.

“I also am worried because what I have described isn’t a big success story,” he said. “We expected an upturn in the euro zone and we do have an upswing -- 2014 is better than 2013, but it is weaker than expected.”

TLTRO Uptake

Nowotny also said that he was counting on high take-up of targeted longer-term refinancing operations, or TLTROs, that the ECB is offering next month.

“Any treasurer who doesn’t make use of this offer is making a big mistake,” he said.

Analysts estimate that banks will borrow 300 billion euros ($395 billion) in the initial TLTRO round, according to the Bloomberg Monthly Survey published on Aug 18.

Nowotny, who heads Austria’s central bank, cut his country’s growth forecast for 2014, saying it was hit by the economic slowdown in the euro area and in particular in Germany. The Austrian central bank now sees GDP increasing by 0.9 percent this year, down from a June forecast of 1.6 percent.

Austria’s economy is much more affected by developments in Germany, the country’s biggest trading partner, than by the conflict between Ukraine and Russia, he said.

To contact the reporters on this story: Boris Groendahl in Alpbach atbgroendahl@bloomberg.net; Alexander Weber in Alpbach at aweber45@bloomberg.net

Reuters News - Cameron to tell split business community Scotland should stay in Britain

Britain's Prime Minister David Cameron arrives in Downing Street in central London August 20, 2014.

CREDIT: REUTERS/TOBY MELVILLE

(Reuters) - British Prime Minister David Cameron will make the case for the economic benefits of Scotland staying in the United Kingdom on Thursday as a divided business community publicly take sides.

With three weeks to go until a referendum on independence, 200 Scottish business leaders, including Stagecoach head Brian Souter and engineering tycoon Jim McColl of Clyde Blowers, joined forces in a letter published in Glasgow newspaper The Herald on Thursday backing Scotland's breakaway.

A day earlier, a group of 130 business leaders, among them the heads of giants BHP Billiton, temporary power provider Aggreko and HSBC bank, had signed an open letter opposing independence, saying nationalists had failed to make the business case for an independent Scotland.

Many companies, large and small, had previously refused to take sides in the highly-charged debate.

A number of questions remain over the financial and economic arrangements of an independent Scotland, including what currency it would use, EU membership, and the future of North Sea oil.

Several recent polls have shown support for independence pushing higher. But the most recent "poll of polls", on Aug. 15, which was based on an average of the last six polls and excluded undecided respondents, found support for a breakaway stood at 43 percent against 57 percent for remaining within Britain.

The pro-independence letter said the end of the 307-year-old union with England would give Scotland the powers "to give our many areas of economic strength even more of an advantage in an increasingly competitive world".

"I think it would be good for the whole of Scotland... we will be able to control our own financial affairs and stimulate our own economy," Sandy Adam, chairman of Springfield Properties Plc, told BBC Radio.

Cameron has taken a low-profile role in the debate, aware that his privileged English background has limited appeal in Scotland, where his Conservative party has only one of Scotland's 59 seats in the London parliament.

But with nationalists starting to gain some ground in polls before the Sept. 18 referendum, Cameron will make a rare foray north of the border to argue Scotland is better off as part of a large domestic market with a shared currency, taxes, and rules.

"This is one of the oldest and most successful single markets in the world," Cameron will tell business leaders at a dinner in Glasgow.

"Scotland does twice as much trade with the rest of the UK than with the rest of the world put together...trade that helps to support one million Scottish jobs."

The major British parties and businesses opposed to independence argue Scotland is better off in the United Kingdom and could instead be given further powers to its devolved parliament to ease fears that policies made in London will continue to dominate Scotland.

Scotland has had its own devolved parliament since 1999 and can legislate on issues such as education, health, the environment, housing, and justice.

(Reporting by Alistair Smout, Writing by Belinda Goldsmith, Editing by Angus MacSwan)

BBC News - South African economy avoids recession

South Africa has avoided falling into recession after second-quarter GDP figures showed the economy grew by 0.6% during the April-to-June period.

The economy had contracted by 0.6% in the first quarter. A platinum strike in the country was blamed for the poor performance in the first three months.

South Africa was last in recession in 2008 amid the global financial crisis.

By 2011 it had made a substantial recovery, but there have been worries recently that it would slip back.

Africa's most advanced economy, and the continent's second largest, grew by 1% compared with the same period a year earlier, against annual growth of 1.6% in the previous quarter.

South Africa's agriculture sector grew by 4.9% in the second quarter, while its financial sector expanded by 1.5%.

Meanwhile, the under-pressure mining sector contracted by 9.4% from the previous quarter while the manufacturing sector shrank by 2.1%.

Analysis: Lerato Mbele, BBC Africa business correspondent, Johannesburg

South Africa has narrowly avoided a recession. The focus should now be on growth.

The country has a high unemployment rate and more than eight million people out of work. To create jobs for a tenth of these citizens, South Africa would need to grow by at least 6% each year, experts say.

But even in the good years, before the 2008 global credit crisis, South Africa struggled to reach these numbers. Leaders, trade unions, researchers and voters have wondered how the most advanced and industrialised economy in Africa could fall so far back.

The answer lies somewhere in the archaic structure of the economy.

Mining is often referred to as the backbone of the economy, yet the sector makes up less than 10% of total economic activity. However, the mines earn more than 50% of the country's foreign exchange from their mineral exports.

Another major area of concern is manufacturing. South Africa's factories are not producing as much as before, mainly because of competition from Asia, and production costs are rising.

Fuel and electricity prices are higher, and the weaker South African currency has not helped the situation.

As a whole, the latest GDP figures prove that South Africa is not in recession, but clearly the fragile economy is not out of the woods.

Debt worries

Economists said the effect of the five-month strike on South Africa's platinum mines had spilled over into other sectors, and the hope of a quick improvement in the country's economic fortunes was distant.

Shilan Shah of Capital Economics said: "Looking ahead, there is little reason to expect a sharp turnaround in performance over the coming quarters."

Many analysts say that South Africa is also becoming the victim of a growing credit bubble.

Earlier this month, African Bank was bailed out by the country's central bank and South Africa's four largest banks were downgraded by ratings agency Moody's.

There is evidence that many South Africans use 70% of their income to service their debts.

Dr Cas Coovadia, the chief executive of the Banking Association of South Africa, said: "People are borrowing to get into a life style that, quite honestly, they cannot afford."

South Africa has high unemployment - around 25% of the workforce, or 8.3 million people.

"For an economy that's just not growing, ultimately it's not going to create the jobs," said the South African economist Mike Schussler.

"Whether it's a recession or not is a technical term - we are not growing," he added.

Bloomberg News - Slowing Home Sales Show U.S. Market Lacks Momentum: Economy

The pace of new-home sales fell to the slowest in four months in July, signaling U.S. real estate lacks the vigor to propel faster growth in the economy.

Purchases unexpectedly declined 2.4 percent to a 412,000 annualized pace, weaker than the lowest estimate of economists surveyed by Bloomberg, Commerce Department data showed today in Washington. June purchases were revised up to a 422,000 rate after a May gain that was also bigger than previously estimated.

Housing has advanced in fits and starts this year as tight credit and slow wage growth kept some prospective buyers from taking advantage of historically low borrowing costs. Bigger job and income gains, along with a further slowdown in price appreciation, would help make properties more affordable.

“It’s a little bit disappointing,” said Thomas Simons, an economist at Jefferies LLC in New York and the top forecaster of new-home purchases over the past two years, according to data compiled by Bloomberg. “The new-home sales data have no traction whatsoever and don’t seem to be gaining at all.”

In contrast, purchases of previously owned properties have climbed for four straight months, reaching an almost one-year high in July, according to data from National Association of Realtors. Combined annualized sales of existing and new homes totaled 5.56 million in July, the fastest since October.

“The housing data when you look at all of it together is still, on net, encouraging,” Simons said. “Everything is moving in the right direction, just a little more slowly.”

New-home sales, which last year accounted for about 5 percent of the residential market, are tabulated when contracts are signed, making them a timelier barometer than transactions on existing homes.

Existing Homes

Demand for existing homes picked up last month as low borrowing costs and an increase in inventory drew buyers. The annual pace of purchases climbed to 5.15 million in July, the best showing since September, according to the Realtors group.

Builders and their suppliers see room for growth as the job market improves. As foreclosures and other distressed property sales become a smaller share of the market, housing growth will accelerate, said Robert A. Niblock, chairman and chief executive officer of home-improvement chain Lowe’s Cos., based in Mooresville, North Carolina.

“Signals from the housing market appear mixed,” Niblock said on an Aug. 20 earnings call. “We believe home-improvement spending will continue to progress in tandem with strengthening job and income growth.”

Stocks Rise

Stocks rose, briefly sending the Standard & Poor’s 500 Index above 2,000 for the first time, as corporate dealmaking and prospects for economic stimulus bolstered confidence in the bull market. The S&P 500 advanced 0.5 percent to 1,997.94 at the close in New York. The S&P Supercomposite Homebuilding Index dropped 0.7 percent.

European Central Bank President Mario Draghi’s concern is that if inflation expectations keep falling, they’ll affect actual prices as investors, consumers and companies pull back spending in anticipation. On Aug. 22 at a central-banking conference in Jackson Hole, Wyoming, he said the ECB “will use all the available instruments needed to ensure price stability over the medium term.”

The Commerce Department’s new-home sales figures showed purchases dropped in three U.S. regions, led by a 30.8 percent slump in the Northeast. The West declined 15.2 percent and the Midwest fell 8.8 percent. Sales rose 8.1 percent in the South.

The median forecast of 70 economists surveyed by Bloomberg called for all home sales to accelerate to a 430,000 rate. Estimates ranged from 414,000 to 470,000 after a previously reported 406,000 in June.

This Year

Sales of new properties have averaged 429,000 over the last three months, in line with the 2014 average.

More hiring and income growth may persuade some Americans to sign purchase contracts. The economy added more than 200,000 jobs for a sixth straight month in July, the longest such stretch since 1997, according to Labor Department figures. At the same time, wages are barely keeping up with inflation.

A decline in borrowing costs this year is providing some support. The average 30-year, fixed-rate mortgage was 4.1 percent in the week ended Aug. 21, down from 4.53 percent at the start of January, according to data from Freddie Mac in McLean, Virginia.

Limited progress in the housing market is a risk for the economy, according to Federal Reserve Vice Chairman Stanley Fischer. The real-estate market “continues to weigh on the recovery,” he said at a conference earlier this month.

An increase in supply of available homes is limiting price appreciation, which could spur more buyer interest.

Today’s data showed the supply of homes at the current sales rate rose to 6 months, the highest since October 2011, from 5.6 months in June. There were 205,000 new houses on the market at the end of July, the most in almost four years.

The median sales price of a new house climbed 2.9 percent from July 2013 to $269,800 last month.

To contact the reporter on this story: Lorraine Woellert in Washington atlwoellert@bloomberg.net

Reuters News - Euro zone bond yields fall as ECB's Draghi boosts QE speculation

European Central Bank (ECB) President Mario Draghi speaks during the bank's monthly news conference in Frankfurt August 7, 2014.

CREDIT: REUTERS/RALPH ORLOWSKI

(Reuters) - Euro zone bond yields fell sharply on Monday after European Central Bank President Mario Draghi boosted speculation that the monetary authority will eventually loosen its policy by printing money.

In stronger language than he has used in the past, Draghi said on Friday at an annual meeting of central bankers in Jackson Hole, Wyoming, that the ECB was prepared to respond with all its "available" tools should inflation drop further.

This increased speculation the ECB could embark on a large-scale asset-purchase scheme known as quantitative easing (QE).

The ECB cut all its interest rates in June and flagged measures to pump up to 1 trillion euros into the sluggish euro zone economy by offering cheap long-term loans to banks.

The ECB has been struggling for months to lift inflation out of what it calls a "danger zone" of sub-1 percent. Euro zone consumer prices grew 0.4 percent in July and are expected to post 0.3 percent growth in August on Friday, a far cry from the ECB's target of just below 2 percent.

Germany's Ifo business sentiment at 0400 EST was expected to add to the picture of a lackluster euro zone economy.

German 10-year yields DE10YT=TWEB were down 3 basis points at 0.958 percent, close to their record lows of 0.952 percent. German Bund futures FGBLc1 were up 43 ticks at 150.70.

"(Draghi's) comments are likely to keep alive the hopes that the ECB adds more stimulus measures to push the inflation expectations back upwards," said Suvi Kosonen, an analyst at Nordea.

Trading was light due to a bank holiday in London.

Spanish ES10YT=TWEB and Italian IT10YT=TWEB 10-year yields fell 8 bps to 2.31 percent and 2.51 percent, respectively, while Portuguese yields PT10YT=TWEB fell 14 bps to 3.12 percent.

(Reporting by Marius Zaharia, editing by Nigel Stephenson)

Bloomberg News - Swedish Banks Hooked on Short FX Debt Win Regulatory Respite

Photographer: Andrew Harrer/Bloomberg

Anders Borg, Sweden's Finance Minister

Sweden’s financial regulator said banks under pressure from the government and central bank to curb short-term foreign currency funding have little room to adjust their financing given the economy they operate in.

“From our supervisory perspective, we understand the structural logic for having a reliance on market funding,” Uldis Cerps, head of banking at the Swedish Financial Supervisory Authority inStockholm, said in an interview at the agency’s headquarters on Aug. 20.

Finance Minister Anders Borg has repeatedly told banks in the largest Nordic economy to wean themselves off short-term wholesale funding, particularly in currencies other than kronor, after a market freeze in 2008 left lenders reliant on central bank liquidity. The Riksbank has even suggested charging banks to help cover the cost of holding reserves needed to hedge banks’ currency risks.

Yet Cerps at the FSA says the sheer size of Sweden’s export sector -- half the nation’s gross domestic product comes from sales abroad -- creates a demand for dollars and euros that banks need to service. Swedes also prefer investing in funds and stocks to putting their cash in deposit accounts, limiting banks’ access to household savings for their funding needs.

Deposit Shortage

“There is not sufficient deposit funding given the savings pattern of Swedish households,” Cerps said. “In addition to that Swedish banks are serving their customers, who are big international export-oriented companies, and that means that there is not sufficient domestic deposit savings in order to meet all those needs, so they are in need of foreign market funding.”

Swedish banks rely on deposits for about half their funding needs and get the rest from capital markets, according to the financial regulator. By comparison, banks in the euro area are more than 90 percent deposit funded, on average. About half of Swedish banks’ market funding is in foreign currencies, the central bank estimates.

Though the FSA understands the structural reasons behind Swedish bank funding patterns, it’s not blind to the risks posed by relying on markets that in the past have disappeared overnight.

“We are very closely following banks’ market funding,” Cerps said.

Reduced Reliance

Back in March, Borg said the government was preparing steps to force banks to cut their reliance on non-krona funding once stricter capital rules were in place. The regulator in May presented a new package of capital requirements that will add to some of the world’s strictest reserve rules.

The government will “eventually have to return to the liquidity requirements and the banks must expect that the order we have today with market financing via currencies won’t remain,” Borg told reporters in Stockholm on March 28.

The four party coalition that Borg is part of is poised to lose elections next month, according to polls. The Social Democrat-led opposition has signaled it plans to keep pressure on banks and their capital levels if elected into office.

Improving Resilience

Cerps said regulatory efforts such as implementing a liquidity coverage ratio earlier than required under the Basel framework, a planned net stable funding ratio and stricter capital requirements will help Swedish banks manage their funding risks.

“Our regulatory efforts have focused primarily on banks having enough resilience to deal with unexpected shocks,” Cerps said. “First of all, of course, we need to make sure that the banks are perceived as strong in terms of their capital strength to minimize the risks stemming from sudden changes in the behavior of debt investors.”

Other measures, such as the finalization of a net stable funding requirement for banks, will “hopefully further reduce the risk,” said Cerps.

Sweden’s banks have retained earnings and cut costs to meet stricter capital requirements. These include adding systemic risk buffers, higher mortgage risk weights and a counter-cyclical buffer. Together, these measures have raised capital standards so that Nordea Bank AB (NDA)’s minimum requirement is 14 percent. Swedbank AB (SWEDA), Sweden’s biggest mortgage bank, must meet a 19 percent minimum buffer.

Best Capitalized

Sweden’s liquidity coverage ratio rule, enforced two years before a 2015 Basel deadline, requires banks to have a large enough buffer of highly liquid assets to cover cash outflows for 30 days in a stressed scenario. Sweden’s four big banks all meet that requirement, FSA data show.

As a result, they enjoy lower borrowing costs than many of their European peers. Swedbank said in its second-quarter report that “low risk further reduced our funding costs during the quarter.”

All of the measures taken in Sweden “will make banks more resilient and less vulnerable to sudden funding market shocks,” Cerps said. “Of course we’ll have to assess those measures going forward as we do with all measures taken to see if they are still adequate.”

While market funding has been identified as a risk by the regulator and the government, Swedish households’ record indebtedness remains a bigger worry for policy makers.

To help curb debt growth, the FSA is looking into an amortization requirement for mortgage holders. It’s also assessing whether to limit household debt burdens relative to incomes and restrict the use of floating mortgage rates, Cerps said. Lowering the existing mortgage cap is another option, he said.

“If you want to further address the issue of household indebtedness then you probably have to look at all types of measures that are directly aimed at households,” he said.

To contact the reporters on this story: Niklas Magnusson in Stockholm atnmagnusson1@bloomberg.net; Frances Schwartzkopff in Copenhagen atfschwartzko1@bloomberg.net

Bloomberg News - Europe Investment Banking Fees Climb Faster Than Rest of World

Investment-banking fees in Europe, growing faster than in Asia and the Americas, are set to reach a seven-year high as sales of debt and stock and a buoyant U.K. economy outweigh stagnant income from trading.

Revenue from arranging mergers, stock and bond sales and loans in Europe, the Middle East and Africa climbed 30 percent to $17.3 billion for the seven months ended in July, compared with the year-earlier period, according to data compiled by New York-based research firm Freeman & Co. this month.

Fees are on pace to rise as much as 35 percent this year and may surpass $30 billion, Freeman estimates, the most since $39.6 billion was collected in 2007, as mergers and acquisitions pick up. Share and bond offerings and M&A have been bright spots for securities firms as fixed income, commodities and currency trading, known as FICC, stays depressed and prompts banks such as Barclays Plc (BARC) and Credit Suisse Group AG (CSGN) to cut staff.

“There’s life after FICC for the diversified investment banks,” said Scott Moeller, a professor of corporate finance at London’s Cass Business School and former banker.

The beneficiaries include JPMorgan Chase & Co. (JPM) and Deutsche Bank AG, the top-ranked arrangers of share sales in Europe, the Middle East and Africa this year, according to data compiled by Bloomberg. Morgan Stanley (MS) and Goldman Sachs Group Inc. are the top-ranked merger advisers in Europe this year.

Syndicated Loans

Fees in the Americas and Asia-Pacific both grew 10 percent, one-third of the European pace, to $31.4 billion and $9.6 billion respectively in the year to July, Freeman’s data show.

Firms have sold more syndicated loans in Europe as investors seek assets with higher yields, according to Freeman, which compiles estimates of fees at securities firms.

“We expect M&A to pick up at a higher pace, which will support the acquisition finance loan market,” said Teck-Tjuan Yap, a managing director at Freeman in New York.

Fees from equity capital markets more than doubled to $4.1 billion in Europe, while income from bonds and syndicated loans increased 21 percent and 28 percent to $5.1 billion and $3.8 billion respectively.

While stiffer capital requirements have hindered trading revenue, they have indirectly generated fees for firms helping banks sell securities to bolster their financial strength.

Italy’s Banca Monte dei Paschi di Siena SpA raised 5 billion euros ($6.6 billion) in a rights offering and Germany’s Deutsche Bank (DBK), the biggest investment bank in Europe, concluded an 8.5 billion-euro share sale in the second quarter.

Inversions

In the U.K., which is set to be the best-performing Group of Seven economy this year, IPOs have been driven by private-equity firms exiting investments, such as the 1.4 billion-pound ($2.3 billion) offering of AA Plc (AA/) in June.

Fees for arranging mergers have climbed as the value of deals grew 75 percent to $832 billion in the year to date, data compiled by Bloomberg show. U.S. firms seeking foreign listings for tax reasons, known as inversions, have helped drive M&A activity, such as AbbVie Inc.’s July 18 announcement that it’s buying Dublin-based drugmaker Shire Plc (SHP) for $55 billion.

“High cash levels in the corporate sector, the low cost of bond financing and a bubble in stock markets have encouraged mergers,” said Ismail Erturk, a senior lecturer on banking at Manchester Business School. “Quantitative easing in the U.S. and the U.K., and the European Central Bankfunding support for the eurozone banks, have inflated asset prices.”

Weak economies, slowing inflation and jitters from the Ukraine crisis may still derail the fee-growth story. Statistics released last week showed Germany’s economy contracted more than economists forecast last quarter, while France stagnated.

“While there are signs that this activity will continue in the months ahead, the recent economic slowdown in Germany, France, Italy and elsewhere in Europe should be a cause for concern,” saidFrank Aquila, a partner at corporate law firm Sullivan & Cromwell LLP in New York.

To contact the reporters on this story: Ambereen Choudhury in London atachoudhury@bloomberg.net; Julia Verlaine in London at jverlaine2@bloomberg.net

BBC News - Scottish independence: Report claims UK oil forecasts 'too pessimistic'

Future North Sea oil and gas revenues could be six times higher than a UK economic watchdog has forecast, according to a report.

The Scottish and UK governments have repeatedly clashed over the future of the oil and gas industry

The claim was made by N-56, which describes itself as an "apolitical business organisation".

The UK Office for Budget Responsibility (OBR) has forecast North Sea revenues of £61.6bn between 2013/14 and 2040/41.

But N-56 said the figure could be as high as £365bn, if a series of recommendations were implemented.

N-56 was founded by Dan Macdonald, who is a member of the advisory board for Yes Scotland, which is campaigning for independence.

The Scottish and UK governments have repeatedly clashed over the future of the oil and gas industry, particularly around forecasts from the OBR on the amount of cash it expects to be raised from the North Sea.

Scottish ministers have argued that the OBR forecasts are based on a "very low estimate of future total production", while its own figures have been criticised by opponents who claim they are overly optimistic.

N-56 recommendations

Among N-56's recommendations, some of which were highlighted by the Wood Review of the oil industry earlier this year, is that a more competitive tax regime is established for the North Sea.

It also calls for all policy and decision-makers responsible for taxation and regulation of the industry to be moved to Aberdeen, regardless of the independence referendum result.

An oil fund should also be established to ensure fiscal stability, it added.

Graeme Blackett, from N-56, said: "Since 1970 over £1 trillion in oil and gas revenues have been produced by the North Sea and at least as much value remains to be produced as already has been, presenting a tremendous opportunity for the sector and for Scotland's public finances.

"Scotland is a net contributor to the UK public finances, in part due to our geographic share of oil and gas revenues, and this ensures that our finances are typically healthier than the UK public finances as whole.

"The OBR puts forward incredibly pessimistic forecasts on both barrel price and reserves, largely discredited by industry experts.

"What is clear is these natural resources can be maximised through implementing the recommendations put forward both by ourselves and the Wood Review, delivering considerable surpluses that we would recommend are used to invest in an oil fund to benefit future generations."

A spokesman for the pro-Union Better Together campaign said: "It's not surprising that a report by an organisation founded by an adviser to Yes Scotland has reached this conclusion."

'Substantial report'

The N-56 report was welcomed by Scotland's First Minister Alex Salmond.

He said: "This substantial new report from a leading business organisation blows another huge hole in the credibility of the OBR's oil forecasts, especially as it comes just days after esteemed Scottish economist, Prof Sir Donald Mackay, said the OBR's calculations were 'precisely wrong' and 'hopelessly at sea'.

"The report also endorses the Scottish government's plans to set up an energy fund - something Westminster have consistently failed to do to the great detriment of current and future generations.

"Instead of continuing to talk down Scotland's oil and gas sector, the No campaign should acknowledge that the sector has a bright future ahead of it."

Responding to the report, a UK Treasury spokesman said: "The Scottish government's claim that Scotland's public finances will be boosted by separation are based on inflated oil and gas forecasts.

"Every independent expert agrees that North Sea oil and gas revenues are volatile and will ultimately decline.

"The Scottish government's own stats show that over the past two years, North Sea tax revenues were around £5bn less than the Scottish government's lowest estimate.

"The North Sea is a maturing basin and it needs valuable incentives from the Exchequer to sustain investment, which the UK, with its broad and diverse tax base, is able to provide.

"An independent Scotland would have to invest almost £3,800 per head - over 10 times more than when the costs are spread across the whole UK - to match the estimated £20bn the UK government has guaranteed to provide on decommissioning relief in the North Sea. This report takes no account of these costs.

"It is not credible for the Scottish government to say they would sustain current tax incentives for the oil industry and set up an oil fund, while cutting corporation tax below the UK level and increasing welfare benefits.

"How would they fund all these tax cuts, ensure increase public spending and put money aside for an oil fund?"

Bloomberg News - SNB to Cap Franc Until 2016 as Euro Area Recovery on Hold

Photographer: Andrew Harrer/Bloomberg

Swiss National Bank President Thomas Jordan stressed in an interview with Die Weltwoche magazine in July that the cap would remain for the “foreseeable future.”

The Swiss National Bank is seen maintaining its cap on the franc for at least another two years as the economic revival in the neighboring euro area struggles to gain tractions.

More than three quarters of the respondents in the Bloomberg Monthly Survey of 23 economists say that the central bank will keep its ceiling of 1.20 per euro at least until 2016. Not even a 10th say it will remove the barrier next year.

The Zurich-based institution set the minimum exchange rate three years ago amid the euro area’s debt crisis, citing the risk of deflation and a recession. The 18-country bloc’s recovery stalled in the second quarter and European Central Bank President Mario Draghi said interest rates would remain at their present low for an extended period.

“So long as the ECB doesn’t raise rates, the SNB can’t do anything either,” said David Marmet, an economist at Zuercher Kantonalbank. “The ECB is very hesitant to do anything, and that indicates that the point in time for the Swiss doing anything gets pushed back.”

According to the poll, 39 percent of the respondents see the SNB exiting the cap in 2016 at the earliest, with 44 percent not expecting the move before 2017. Policy makers have said they won’t raise interest rates as long as the cap is in place.

Strong Franc

The persistence of weak growth in the euro area has prompted economists to progressively delay the moment at which they expect the SNB to remove the minimum exchange rate. Last month, 46 percent bet on a suspension in 2016, while 23 percent predicted one in 2017 or later.

SNB President Thomas Jordan stressed in an interview with Die Weltwoche magazine in July that the cap would remain for the “foreseeable future.” The SNB, whose mandate is for positive rates of inflation below 2 percent, forecasts stagnant consumer prices this year. It sees them rising just 0.4 percent next year and 1 percent in 2016. That compares with a median economist forecast of 0.6 percent in 2015 and 1.1 percent in 2016.

The franc, which investors tend to buy at times of heightened market stress, has risen 1.3 percent against the euro since the start of the year, according data compiled by Bloomberg.

It traded little changed at 1.2111 per euro at 9:54 a.m. in Zurich today, after strengthening to 1.20864 on Aug. 15, the first time it broke through 1.21 since January 2013. Even so, the SNB hasn’t had to intervene to defend the cap in almost two years.

To contact the reporters on this story: Catherine Bosley in Zurich at cbosley1@bloomberg.net; Joshua Robinson in London at jrobinson37@bloomberg.net