U.K. Recession Deepens

He added, “But given what’s happening in the world we need a relentless focus on the economy, and recent announcements on infrastructure and lending show that’s exactly what we’re doing.” King may find himself boosting BoE efforts to promote growth nonetheless. Ross Walker, an economist at Royal Bank of Scotland Group, said in the report, “This isn’t easy for policy makers to interpret, but it increases the likelihood of further easing.”

The banking sector in Britain has its own woes. Investors are calling for the U.K.’s largest banks to provide estimates of how much the scandal over the rigging of the London interbank offered rate (LIBOR) could cost them as they report first-half earnings later in the week.

Although the big U.K. banks are expected to have done better than the top five U.S. banks, which this year posted the lowest first-half revenue since 2008, the shadow of four major banking scandals in the past 14 months will no doubt extract a price.

With the four largest-by-assets banks having already reserved 6.9 billion pounds ($10.69 billion) to compensate customers over improperly sold insurance, they still face probes over misselling interest rate swaps to small businesses. In addition, HSBC could face fines for failing to enforce money-laundering regulations that the U.S. Senate has said gave drug rings and terrorists entree to the U.S. financial system.

Morgan Stanley analyst Betsy Graseck estimated such tolls in an investor note on July 12. She put possible numbers at another 626 million pounds from civil lawsuits for Barclays, which has already been fined a record 290 million pounds over the LIBOR debacle. In addition, she estimated fines and legal costs of as much as 2.2 billion pounds for Royal Bank of Scotland Group, Lloyds Banking Group and HSBC Holdings.

The banks themselves have remained quiet on the subject and are likely to continue to keep mum, four unidentified individuals who have knowledge of the banks’ reasoning told Bloomberg. RBS, Lloyds, HSBC and Barclays could cite international financial reporting standards used by U.K. firms, which only require banks to set aside funds for such expenses if the amount can be “estimated reliably.”

However, Prem Sikka, an accounting professor at the University of Essex, England, said in the report, “They’ll say it’s a contingency, the amounts are unknown, therefore we can’t deal with anything with certainty. I would say they should provision. They know it’s coming.”

Richard Hunter, head of equities at Hargreaves Lansdown, a British stockbroker with 26 billion pounds of assets under management, expressed the views of many when he said, “We hope for some form of guidance on what the banks are looking to provide for on LIBOR. Where the U.S. is concerned, you have the potential for litigation which can take considerable time to get to the other side of.”

Ian Gordon, an analyst at Investec in London, summed it up in the report, saying, “With limited scope for negative surprise on impairments and with a predictable weak outlook for revenues, expect a broadly underwhelming picture.”