Lloyds Banking Group has reported a pre-tax profit of £2bn for the first quarter, up a third from the same period last year and well above analyst expectations of £1.84bn. However, the bank warned that the economic fallout from the Middle East conflict could cost it £151m, as it issued a downbeat forecast for the UK economy.
The FTSE 100 group, which owns Lloyds Bank, Halifax and Bank of Scotland, now expects UK GDP growth of just 0.5% this year, lower than the International Monetary Fund's 0.8% prediction. It also forecast unemployment to rise to 5.6% by the second half of the year, up from the current rate of 4.9%.
The bank attributed the weaker outlook to the stagflationary consequences of the conflict, including rising energy prices pushing inflation higher. It expects inflation to hit 3.9% by year-end, compared with the current 3.3%. Despite market expectations of at least two rate rises, Lloyds believes the Bank of England will hold the base rate at 3.75% until at least the third quarter of 2027.
Chief financial officer William Chalmers said: “This isn’t a recessionary environment. It is a slowdown in growth expectation since the beginning of the year due to the Middle East conflict.” He added that the bank assumes a gradual de-escalation of hostilities over the course of the year.
The group booked a total £295m underlying impairment charge for the quarter, down from £309m a year ago, which included the impact of the global tariff war. Lloyds' strong performance follows a trend in the banking industry, with major lenders benefiting from market turbulence.
