Mark Hake, an analyst at Merrill Lynch, says the British housing market could take 20 years to recover from its current downturn.

Merrill, one of the City of London’s leading investment banks, said, in a note to clients, ” … it looks significantly worse [than the 1990 downturn], with house prices falling faster and further and very little recovery in real terms expected over 20 years. … House prices are expected to be below their August 2007 peak in a further 10 years’ time.”

The bank forecasts house prices to fall by as much as 17 per cent this year, while inflation is set to continue its upward march in coming months as the economy absorbs the effects of higher oil and food prices.

To add to the woes, David Kern, economic advisor to the British Chambers of Commerce, thinks unemployment will rise to nearly two million by the end of 2009. He commented, “The results of this survey signal a menacing deterioration in UK prospects We are now facing serious risks of recession. London appears pretty weak and it’s across the board. Businesses are in a lose-lose situation. Falling demand and the squeeze on consumer disposable incomes will limit how far prices can be increased.”

Jonathan Pierce at Credit Suisse — itself in the wars over structured debt obligations — thinks that Barclays is facing a near £10 billion ($20bn) of losses if it follows Royal Bank of Scotland in adopting a conservative estimate of its mortgage assets.

RBS declared £5.9 billion ($12bn) last week and has opted for a £10 billion request for cash from its shareholders.

Barclays will, we understand, keep its losses confidential.

It looks like blue-chip Barclays will be the next major bank to announce a rights issue, or look for outside investors, possibly from the sovereign wealth funds of the Middle East or Far east.

Yet another huge loser in the American subprime mortage market is set to announce big writedowns next week.

Royal Bank of Scotland (RBS), Britain’s second largest bank, is understood to be seeking to raise capital from its shareholders in a rights issue thought to amount to £10 billion ($20bn), which is probably the biggest rights issue ever demanded in the UK.

The bank, which bought troubled NatWest and ABM Amro, has been running on low capital ratios for quite a while. It also has major exposure to subprime debt instruments. It has been linked with Spain’s Banco Santander for many years.

When such a major player is caught short like this, it brings home the extent and depth of the crisis in transatlantic financial markets, with all the knockon effects to the rest of the world.

Vince Cable, a spokesmen on Treasury matters who carries more weight than the Treasury these days, believes all the banks should follow the example of RBS, since they will need a great deal of liquidity from the Bank of England and that should be underwritten by shareholders, not taxpayers.

We await next week’s announcement, which will surely be leaked over the weekend.