NatWest has reported a 12% year-on-year increase in operating profits to £2bn in the first three months of the year, up from £1.8bn in the same period last year. However, the bank warned that the economic fallout from the conflict in the Middle East could cost it £140m amid slowing growth and rising inflation.
Impairment Charge and Economic Forecast
The FTSE 100 lender booked a £283m impairment charge, stating that almost half of that was due to a reassessment of its economic forecast to reflect increased geopolitical risk and weaker equity markets. NatWest expects UK GDP growth to be only 0.4% this year, half the forecast by the International Monetary Fund earlier this month.
Unemployment and Inflation Projections
NatWest's economic forecasts include a rise in unemployment to 5.5% this year, compared to the Office for National Statistics' February figure of 4.9%. The bank also predicts inflation will hit 3.5% due to the Iran war. Despite this, NatWest believes the Bank of England will maintain the base interest rate at 3.75% until at least 2030, contrary to market expectations of at least two rate rises this year.
Impact on Housing Market
NatWest expects house prices to rise by an average of 0.7% this year, but forecasts a 1.8% contraction next year and a 0.5% fall in 2028. The bank also noted that income for the year is expected to be near the top of previous guidance of £17.2bn to £17.6bn, benefiting from market turbulence due to the Middle East conflict.
Earlier this week, Lloyds Banking Group booked a £151m charge due to changing economic conditions and forecast GDP growth of 0.5%. The Bank of England left rates at 3.75% but warned of increases later this year, stating that higher inflation is unavoidable as a result of the war in the Middle East.
