A LEADING economist has urged the Scottish Government to prepare to create a new currency if the country votes to leave the UK next year.

Dame DeAnne Julius, a former member of the Bank of England's key Monetary Policy Committee, said a separate currency, which she dubbed the "scottie", would give greater control over economic policies.

Blogging for the Financial Times, she said a new currency "probably has the most emotional appeal to those inclined to vote for independence".

She wrote: "It is the only option that would allow Scotland to set its own monetary policy and make its own trade-offs with fiscal policy."

The academic and former CIA analyst said there would be "clear costs" to setting up a currency and the move would affect the cost of doing business. She also warned the exchange rate of the new currency could "fluctuate wildly" if an independent Scottish Government lost credibility on global money markets.

But, considering problems with keeping the pound, she concluded: "Launching a currency and its supporting institutional arrangements would be complex and require careful planning. With the vote less than two years away, those who are campaigning for independence had better start on the prenatal preparations for the scottie."

Ms Julius echoed warnings from Chancellor George Osborne who said last week that Scotland might not be able to negotiate a currency union with the UK, the policy favoured by Alex Salmond.

She said Westminster was "unlikely to offer any favours". Her intervention follows growing calls from within the pro-independence movement to create a separate currency if Scotland leaves the UK.

The chairman of the Yes Scotland campaign, Denis Canavan, former SNP leader Gordon Wilson and former deputy leader Jim Fairlie have all backed the idea.

A Scottish Government spokeswoman said an independent Scotland would keep the pound. She added: "It would be impossible for Scotland to face tighter budgetary controls than we do today when our overall budget is set by Westminster and we are not allowed to borrow."