BY REBECCA THURLOW

SYDNEY—National Australia Bank Ltd. said Tuesday it is reviewing its operations in the U.K., where it owns more than 300 branches combined of the Clydesdale and Yorkshire banks, after abandoning hopes of a near-term economic recovery there.

"The market is likely to view this as clearing the path for a sale of the U.K. bank," said RBS analysts in a research note.

NAB Chief Executive Cameron Clyne said the division's first-quarter earnings fell as the U.K. economy contracted, and the bank now expects a prolonged recession in Europe.

"It is clear that the U.K. economy is likely to experience a ...