Dismal British economic data that emerged yesterday may feed into growing market pessimism and renewed oil demand erosion concerns, a Kingdom-based analyst has warned.

Jarmo T. Kotilaine, chief economist at the National Commercial Bank, also saw no major impact on Gulf states from the ongoing interest rate fixing scandal rocking Europe and the United States.

“The crisis is likely to strengthen the pressure for greater regulatory scrutiny globally and probably also in the region, something that is already happening, most notably in the UAE,” he added.

The European Commission said yesterday it will ask all member states to introduce criminal penalties for rigging interest rates so as to help restore market confidence after the London LIBOR scandal.

Britain is suffering a far deeper recession than thought, official figures showed yesterday. The Office for National Statistics said the British economy contracted by a quarterly rate of 0.7 percent in the second quarter of the year.

Kotilaine said the UK report is, more than anything, indicative of the deep structural and cyclical challenges the European economies now face.

“The direct impact on the GCC should be fairly minimal. But indirectly, this will feed into growing market pessimism and renewed oil demand erosion concerns.

This will likely boost volatility in the financial markets as they negotiate their way through benign regional fundamentals and deteriorating news from Europe,” Kotilaine said. He added similar counterveiling pressures will be observed in the oil market where political factors, growing marginal costs of extraction, and growing emerging market demand will counteract the negative narrative.

However, he said: “It was widely thought that the UK economy would be relatively more resilient than some of the other European economies and this negative news will certainly strengthen bearish case for oil for now.”

In the longer term, he said the deteriorating economic news will probably strengthen the case for unconventional monetary policy, which would probably support asset prices somewhat.

Britain was already in recession after posting two successive negative quarters since late 2011, Reuters said. GDP shrank 0.4 percent in the fourth quarter of last year and by 0.3 percent in the first quarter of 2012.

Basil Al-Ghalayini, CEO of BMG Financial Group, said: “It is surprising to observe these negative indicators about the UK economy in view of the perceived positive impact and value added of the Olympics Games. Having said that, Gulf nationals are still interested to invest in the UK market especially in the commercial real estate sector, which is considered the most attractive one in Europe.”

About LIBOR scandal, Al-Ghalayini said: “This is a step in the right direction by the European regulator and extremely needed to restore confidence in the UK and other European markets.”