A workman walks past a Scottish saltire in Kilmarnock, Scotland September 3, 2014.
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Goldman Sachs economist Kevin Daly said that while the Wall Street bank still felt the most likely outcome was for Scotland to vote to stay in the United Kingdom, a surprise victory for the "Yes" campaign to break away would have a drastic impact.
"Opinion polls suggest that the gap between the 'Yes' and the 'No' camps has narrowed but that a 'Yes' vote in favour of independence remains unlikely," Daly wrote in the note.
"In the event of a surprise 'Yes' vote, the near-term
consequences for the Scottish economy, and for the UK more broadly, could be severely negative," he added.
STERLING HITS NEW LOWS
The vote takes place on Sept. 18, and Daly said the threat of a break-up would give investors a strong incentive to sell Scottish-based assets and withdraw deposits from Scottish-based banks.
Part-nationalised British bank Lloyds (LLOY.L), which owns Bank of Scotland, is considering having its registered office in London rather than Edinburgh should Scots vote for independence, banking industry sources have told Reuters.
Daly added that the Bank of England would be unable to credibly commit to a sterling GBP= currency union remaining unbroken in case of a "Yes" vote later this month.
The pound hit a new seven-month trough against the dollar on Wednesday despite some upbeat British data, as investors fretted that Scotland may yet vote to break up the UK.
Daly said uncertainty over whether or not an independent Scotland could keep sterling as its currency could lead to a crisis. He drew a comparison with the euro currency bloc, where weaker and more indebted economies have come under intense financial market pressure.
"The UK government's position is that an independent Scotland would not be able to retain sterling as its currency. Pro-independence campaigners argue that, in the event of a 'Yes' vote, the UK government would quickly change its stance because retaining a monetary union would be 'overwhelmingly' in its interests," said Daly.
"However, in our view, the threat to disband the sterling monetary union with Scotland is credible," he added.
"One of the main lessons from the euro area crisis is that a reasonably high degree of fiscal and/or financial integration is necessary, as a means of effective risk sharing, for a monetary union to work. Without political and fiscal integration, it is difficult to see the rest of the UK agreeing to provide a monetary and financial backstop to Scotland."
The "Better Together" campaign, which has recently lost some of its advantage over the rival "Yes" campaign in favour of independence, latched onto Goldman Sachs' warning.
Jackie Baillie, who is a Labour Party member of the Scottish parliament, said the Goldman Sachs note showed that voting for independence could in fact lead to cuts to vital public services such as healthcare and education.
"We know that independence would push up costs on everyday things like energy and shopping bills. Today's expert intervention spells out the reality for our schools and hospitals too," Baillie said in a statement.
The "Yes" campaign for independence, led by politician Alex Salmond, has for its part argued that breaking away could enable Scotland to resist any cuts to public spending set out by the government in London. Salmond has also pledged to keep the sterling currency for an independent Scotland.
A letter on Wednesday from several leading Scottish businessmen, including former Royal Bank of Scotland (RBS.L) chairman Sir George Mathewson, said the UK government was "playing politics" on the currency question.
A poll earlier this week showed that support for Scottish independence rose dramatically in August, leaving the "Yes" campaign just six points behind advocates of staying in the United Kingdom.
(Additional reporting by Jemima Kelly and Alistair Smout; Editing by Anirban Nag/Ruth Pitchford)
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