Lloyds Banking Group has raised concerns about the ‘uncertain’ outlook for the UK economy amid soaring inflation, warning that the cost of living crisis could lead to increased defaults on its loans .
It came as the bank reported a 14% fall in first quarter pre-tax profit to £1.6bn from £1.9bn a year earlier, although that was better than the £1.4bn analysts were expecting.
The drop is the result of a £177m charge to protect the bank against potential defaults as inflation squeezes UK household finances, which hit 7% last month and makes it harder for borrowers to track payments.
It marks a reversal from 2021, when Lloyds released £360million of money originally set aside for defaults linked to the Covid crisis, thanks to government support schemes which reduced the risk that customers are not behind on their debts.
Lloyds, the country’s largest mortgage lender and seen as a gauge of Britain’s economy, said while it had no direct exposure to Russia, the war in Ukraine was affecting customers due to the rising energy and commodity prices, as well as supply chain disruption.
Its chief executive, Charlie Nunn, said the bank was reaching out to customers who may struggle due to the cost of living crisis. “While we are seeing a continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly regarding the persistence and impact of higher inflation,” he said. declared.
“We are proactively reaching out to customers when we think they might need help and will continue to help them with financial health checks and other means of support. We encourage customers, when concerned, to get advice early and talk to us,” Nunn added.
The lender said it would continue to monitor any further risk that may arise from the war in Ukraine. “Investigations have so far not revealed any significant risks, although the group remains vigilant.”