RATINGS agency Moody's has lowered its outlook on the entire UK banking system, flagging up the reams of new rules and looming fines affecting British institutions as reasons to be cautious despite the improving economy.

Moody's yesterday moved its view of the industry from "stable" to "negative", pointing to the government's plans to force banks to separate their high street businesses from their investment banks.

These ringfence requirements, which will come into effect by 2019, are designed to avoid another taxpayer-funded bank bailout.

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However, it leaves banks with less support if they get into financial trouble, and uncertainty while the details of the rules are ironed out, prompting Moody's to take a gloomier view.

The report came a day after HSBC chairman Douglas Flint warned a deluge of new regulation was making staff too nervous to conduct legitimate business.

Moody's also said the six biggest banks have so far incurred a £24 billion bill for UK customer redress, while several global investigations such as the Libor probe also hang over the industry. On the upside, Moody's cheered the rise in employment in the UK and the expected gradual rise in interest rates.