Fri (close): The £2 billion provision set aside by Royal Bank of Scotland to pay fines in the US for marketing of toxic mortgage-backed securities could be more than three times too small, according to sources at the bank.

A full settlement with US financial authorities could cost RBS upwards of £7bn, according to senior sources at the bank cited by The Times.

The taxpayer-owned bank faces fines in the US for the $32bn of mortgage-backed securities marketed by subsidiary RBS Greenwich Capital that authorities claim the bank knew were being mis-sold.

With other US rivals already having settled for tens of millions of dollars, RBS has set aside a £1.9bn provision but insiders now believe settling with the Federal Housing Finance Agency alone could absorb this amount with the Department of Justice (DoJ) also pursuing a hefty sum.

Shares in RBS fell 5.3p or 1.34% to 389.1p.

Manufacturing growth weakened at the end of last year while lending to individuals soared, according to new data which saw sterling hit a 16-month low.

The Markit/CIPS UK Manufacturing Purchasing Managers’ Index, a closely-watched monthly business survey, hit a three-month low in December.

Separate data from the Bank of England showed lending to consumers surged at its fastest rate in nearly a decade in the three months to November, and business lending showed signs of picking up despite a slowing housing market.