Rejoice! We're a safe haven, says Mehdi Hasan

But low gilt yields aren't a vote of confidence in the UK economy.

The Chancellor George Osborne will have been delighted to pick up the Financial Times this morning. As the Eurozone implodes, the FT's splash was headlined:

Gilt yields fall as UK becomes safe haven

"Safe haven" is a line that the Chancellor and his supporters in the right-wing press have been spinning for several months now, arguing that the fall in UK government borrowing costs - gilt yields - to historic lows is a vindication of the coalition's austerity agenda.

It isn't.

The inconvenient truth is that low gilt yields are a reflection of economic weakness, not strength. Investors are pricing for a double-dip recession - or as the Telegraph's in-house deficit hawk Jeremy Warner conceded back in August:

Gilt yields are signalling a depression

As the FT story itself goes on to reveal:

[L]ow returns reflect expectations that the Bank of England will keep interest rates exceptionally low for the foreseeable future given the UK's extremely weak economic prospects.

The paper also cites an important, if under-reported, study by former Cabinet Office chief economist Jonathan Portes:

Examining the links between stock market performance and gilt yields, Jonathan Portes, director of the National Institute of Economic and Social Research, has found a strong correlation between lower gilt yields and greater investor concerns about economic prospects.

Over to you, Gideon...

Mehdi Hasan is a contributing writer for the New Statesman and the co-author of Ed: The Milibands and the Making of a Labour Leader. He was the New Statesman's senior editor (politics) from 2009-12.

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Scotland's vast deficit remains an obstacle to independence

Though the country's financial position has improved, independence would still risk severe austerity. 

For the SNP, the annual Scottish public spending figures bring good and bad news. The good news, such as it is, is that Scotland's deficit fell by £1.3bn in 2016/17. The bad news is that it remains £13.3bn or 8.3 per cent of GDP – three times the UK figure of 2.4 per cent (£46.2bn) and vastly higher than the white paper's worst case scenario of £5.5bn. 

These figures, it's important to note, include Scotland's geographic share of North Sea oil and gas revenue. The "oil bonus" that the SNP once boasted of has withered since the collapse in commodity prices. Though revenue rose from £56m the previous year to £208m, this remains a fraction of the £8bn recorded in 2011/12. Total public sector revenue was £312 per person below the UK average, while expenditure was £1,437 higher. Though the SNP is playing down the figures as "a snapshot", the white paper unambiguously stated: "GERS [Government Expenditure and Revenue Scotland] is the authoritative publication on Scotland’s public finances". 

As before, Nicola Sturgeon has warned of the threat posed by Brexit to the Scottish economy. But the country's black hole means the risks of independence remain immense. As a new state, Scotland would be forced to pay a premium on its debt, resulting in an even greater fiscal gap. Were it to use the pound without permission, with no independent central bank and no lender of last resort, borrowing costs would rise still further. To offset a Greek-style crisis, Scotland would be forced to impose dramatic austerity. 

Sturgeon is undoubtedly right to warn of the risks of Brexit (particularly of the "hard" variety). But for a large number of Scots, this is merely cause to avoid the added turmoil of independence. Though eventual EU membership would benefit Scotland, its UK trade is worth four times as much as that with Europe. 

Of course, for a true nationalist, economics is irrelevant. Independence is a good in itself and sovereignty always trumps prosperity (a point on which Scottish nationalists align with English Brexiteers). But if Scotland is to ever depart the UK, the SNP will need to win over pragmatists, too. In that quest, Scotland's deficit remains a vast obstacle. 

George Eaton is political editor of the New Statesman.