British brokers expect sizeable acquisitions and mergers among the leading banks and building societies. Merrill Lynch believes some of these deals will be done this year. It suggests that the handful of leading British financial institutions can no longer afford not to react to what its rivals are doing.

If, for instance, Lloyds TSB were to get together with another major financial services group, it would automatically put pressure on the likes of Barclays, Halifax, and Abbey National to consider a similar move. This view has already been reflected in the strong performance of the financial sector, the brokers say.