The report indicates that while households’ incomes are slowly recovering, the government’s budget cuts and tight credit conditions have lowered the confidence of households and businesses alike, which has in turn affected demand as economic uncertainty continues to loom.

UK GDP contracted by 0.2% in Q4 of 2011, in contrast to Italy and the Netherlands that both shrank by 0.7%, falling into recession in the last quarter.

According to the report, the gloomy outlook and fiscal consolidation by the government is largely due to external factors, namely the ongoing concerns about the solvency of several euro-area governments, noting that the single biggest challenge to domestic recovery is the absence of a unified policy response in the Eurozone. However, even if the Eurozone crisis could be resolved in the near future, there is likely to be an extended period of slow growth in Europe.

Meanwhile, the five largest institutional banks in the UK, including Barclays, Lloyds Banking Group and RBS failed to fulfill the governmental lending quota in 2011. The deal, referred to as Project Merlin, obliged banks to lend a certain amount of funds, especially to small and medium sized businesses in recognition of state aid during the crisis – a mark missed by over £1billion, from the total of £76 billion.

This has drawn a lot of scrutiny over how the government has handled the situation and this is likely to further curb borrowing by households in the UK as confidence in the sector is falling.

Moody’s said in a statement that although the UK operates outside the Eurozone, it is in danger of further economic, political or financial shocks due to trade and financial links within the zone. Furthermore, the UK’s outstanding debt has effectively matched it with the most indebted triple A-rated nations.

The statement stated that there is a 30% chance of a rating downgrade for the UK within the next 12 to 18 months, which is the lowest level of warning that could be issued by Moody’s. However, even this low-level warning is likely to have an effect on the lending policies of Britain’s financial institutions which are already under pressure from policy makers to keep more funds liquid in case of further shocks from the Eurozone. This will in turn hike up interest rates and hamper the growth and profitability of banks.

The stock and currency markets reacted shortly after Moody’s statement, with sterling falling to a two-week low against the dollar while stocks for most of the reviewed British banks plummeted before making a drawn-out recovery.

Financial Times London reports that during the recent developments in the Eurozone debt crisis saga, Moody’s has downgraded the ratings of six European nations including Italy, Spain and Portugal. Among the 114 major banks under review, over 20 have headquarters in Italy, over 20 in Spain, with 10 in France, 9 in Britain and seven in Germany.

The problems arose with a subsidiary of HSBC called NHFA (Nursing Home Fees Agency). Between 2005 and 2010 the subsidiary provided advice to a total of 2,485 customers with an average age of 83.

Most of the customers were either in care or going into care, and NHFA advised them to buy five-year bonds to fund their care. However, it turned out that many of the customers were actually likely to die before the end of the investment term.

Each customer invested on average £115,000, and following a third-party review it was found that about 90% of the customers were unsuitable for the product.

As a result the FSA handed HSBC the record fine, and the bank is also thought to be paying out £29.3 million in compensation.

However, HSBC was given a 30% discount on the fine because it brought the problem to the attention of the FSA.

Because many of the customers were very elderly, it has been confirmed that any compensation which is due to people who have died will be paid out to their estates instead.

It has all left a very bad taste in the mouth, and hopefully this huge fine will prove to be a deterrent against this form of bad advice being handed out to people in vulnerable positions.

Banks have also taken their own steps to help reduce internet banking fraud. For example, HSBC and Barclays now offer customers basic virus protection when they open an online banking account, to help guard against viruses that can send private banking details and passwords to criminals. As a standard, all banks also employ strong encryption to prevent interception of private information over the internet. An increasing number of banks now further enhance your online security by issuing customers with either a portable card reader or a secure code generator device. A team at Cambridge’s Computer Laboratory, however, recently published a paper (Optimised to Fail: Card Readers for Online Banking, 2011) that highlights a number of issues with the first generation of these devices. Firstly, if your personal card reader is lost or stolen, it may be possible for criminals to guess your PIN by looking at which keys have been worn down, so it is important to notify your bank immediately if your reader is missing. Secondly, the team report that there have been instances of criminals tampering with Chip and PIN readers to use with stolen bank cards in order to access online accounts. However, if you report your card as stolen promptly, these attacks can be mitigated and overall, the card readers do appear to be helping to limit the impact of online banking fraud.

• Protect your computer using either your bank’s virus protection software or some other good virus protection software (such as AVG Free or ClamAV) and make sure that this anti-virus software is up to date.
• Make sure that you can see the “secure” padlock symbol when logged in to your internet banking site. Most recent web browsers also have a way to indicate when your bank is using extra-strong security (for example, for HSBC, HSBC BANK PLC displays in green letters in the address bar).
• Although all online banking sites have a built in time out feature, it is still sensible to try and log out after you have finished, especially if you are using a shared computer as this will prevent anyone from accessing your banking details after you are done.
• If you are using a shared computer (especially when at an internet café), it is a good idea to “Clear Private Data” before logging off the internet. In Internet Explorer, this can be accessed by selecting the Tools menu from the main address bar and clicking on ‘Delete Browsing History’. Instructions on how to do this in Chrome, Safari and Firefox are available online.

Here are the main reasons why:

• Banks are not allowed to close down your account without your permission, and don’t forget that above all, they want to keep your money!
• If you are not planning to stay abroad permanently, it is essential that you keep ties with your bank. When you return to the UK, you may find yourself in a Catch-22 situation: it is very hard to open a UK account without a proof of address – and how can you get a roof over your head without having a bank account?
• Even if you are planning a permanent move, you might want to come back to the UK for holidays or work, so a UK bank account will always come in handy.
• It will help make a smooth transition to your new life abroad, before being able to open an account there.
• You may also have to keep meeting some expenses in the UK (loans, payments, taxes, bills, etc) and collect income (wages, rent, etc). Don’t forget to list the revenue and expenditure that will continue to go through your account. You can set up the necessary automatic withdrawals and transfers before you leave or use online banking.

Once you know your new address abroad, your bank can usually redirect your statements at no extra charge, or you can choose to view them online.

It may be important to consider whether you need to transfer money from the UK on a regular basis. The Times Online lists the services offered by most high street banks such as HSBC, Lloyds and NatWest. The article also warns against excessive bank charges and lists other payment options through specialist brokers.

With contactless payment systems, an embedded chip in a credit card, debit card (or even a key fob or Smart Card) facilitates a lightning fast transaction at point of sale (tills in shops, takeaways, petrol stations, cinemas, etc.). Rather than entering a PIN, the customer simply waves their card over a till-side reader, a secure payment is made, and they’re off!

Banks are confident that the hassle-free contactless payment cards will be a huge hit with people across the UK, and not only for the convenience they offer. Instead of having to rummage in a bag for their credit card, debit card, or cash, customers can find their contactless payment key fob easily and quickly, thereby significantly reducing queuing time for everyone at point of sale.

Contactless payment is also expected to increase consumer spending, with contactless cardholders being more inclined to buy goods on impulse (popping into a newsagent’s to buy a bar of chocolate, newspaper or cigarettes; grabbing a quick cappuccino at a café…). There are even plans for vending machines to be ‘contactless card friendly’ in the coming months.

Of course, banks understand that data protection is paramount when it comes to all card payments; therefore, contactless payment system developers have worked hard to ensure their cards, key fobs and Smart Cards are completely secure to use during transactions.

Most banks offering contactless cards will send their customers one upon request. Also, the (optional) cards will be automatically dispatched by post when customers’ current credit cards or debit cards expire.

According to Barclays, the service has seen a decline in recent years and has become less commercially viable.

One reason for this decision is because Barclays’ customers are increasingly choosing to manage their own investments on-line. This is a trend that is expected to continue to grow, it said.

And following a recent and detailed review of the branch based service, Barclays said that it was unlikely this aspect of business would offer a return, to justify the investment that was needed. This was because of changes to the retail investment marketplace, it added.

The bank is in consultation with the union Unite over the job losses and has said that if the proposals go ahead, it would offer redeployment options with possible opportunities in or outside Barclays.

It is the first of all the high street banks to stop offering customers investment advice at its branches.

In recent weeks the bank launched a new on-line investment service called “Investor Zone”, an educational website aimed at confident on-line customers. The site is user-friendly offering help and advice on financial products. This allows consumers to manage their own portfolio, it explained.

Barclays said that it would continue to provide existing plans and investments that had been taken out by its customers before the closure of the financial service, along with its product and fund management partners.

However, one small ray of light has emerged for concerned British savers. The Financial Services Compensation Scheme (FSCS) has revealed that it will now reimburse savers up to the sum of £85,000 for single accounts if a bank collapses. The FSCS was established for the purpose of compensating those who fall victim to banking failures but there was previously a £50,000 limit in place for the compensation scheme.

With the sum of £50,000 seeming like mere pennies to those affected by the collapse of a bank, it is hoped that the increased sum of £85,000 per saver will ease customer panic if another bank does crumble under the strain of the recession, hence reducing the damaging knock-on effects that can result from a lack of consumer trust.

New rules concerning the time-scale for compensation payouts have also been introduced, with the majority of claims hopefully settled within the space of a single week and all claims settled within a 20-day period.

The director of conduct policy at the Financial Services Authority (FSA), Sheila Nicoll, stated after the announcement that keeping “customer confidence in the banking system” intact, even during difficult times for the sector, is one lesson that must be taken from the global financial crisis.

With the government loans and guarantees received by Lloyds (thought to be in the region of £165 billion and used to keep it afloat and help to deal with the extremely damaging investments and loans that HBOS brought to the merger) due to expire during the first quarter of 2012, Lloyds remain confident that they can complete their refinancing plan prior to that date despite further bad news that the bank is expecting to take a major hit as a result of Ireland’s current economic woes.

However, further significant doubts have been raised over the ability of the banks to refinance successfully. Moody’s, a global credit ratings agency, has revealed that, despite their best intentions to improve their funding profiles, a number of British banks are going to find it extremely difficult to pay back the billions of pounds worth of bonds and loans over the next couple of years. This is a particularly worrying situation since the recession has understandably made international debt investors extremely reluctant to even go so far as to enter into negotiations concerning potential lending.

According to controversial comments reported in the Financial Times from Lord Myners, who was a member of former Prime Minister Gordon Brown’s old economic “war cabinet”, the British public lose out as a result of the banking industry’s total domination by just a few major banks. The lack of competition at the top level of the financial industry means that the wider economy suffers to a far more severe extent when one of the top banks fails than would be the case if the UK had at its disposal a far wider range of banks.

With Lord Myners still a formidable character in the world of banking, it seems likely that those in the financial industry will be quaking in their boots as they consider his request to the Commission on Banking for there to be a break-up of both RBS and Lloyds. Lloyds has been particularly dominant since its takeover of Halifax Bank of Scotland following the threat of collapse to that particular financial giant.

Certain corners of the industry have been quick to criticise the comments, deemed by many to be pure hypocrisy, made by Lord Myners, who was a staunch supporter of Labour’s defence of the monolithic superbanks that were saved by the taxpayer.