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Evening Standard
Evening Standard
Michael Hunter

Lloyds Banking Group beats profit forecasts as lenders now look toward BOE rate hike

Lloyds Banking Group became the latest big-name high street lender to beat profit forecasts today, in the finale of a strong reporting season for UK financial companies, which have shrugged off the crisis seen in the sector in the US and Europe.

The country’s biggest single mortgage lender, which has 26 million customers in total,  reported profit before tax of £2.3 billon for the first quarter, up from £1.5 billion in the same period a year ago. It was higher than the £1.95 billion forecast by City experts.

There was also news of a second-successive quarterly profit from Metro Bank, one of the best-known challengers to the established players in the market, and an upbeat update from One Savings Bank, a buy-to-let lender.

The run better-than-expected first-quarter earnings this week come for a period in which the most acute financial crisis since 2008 struck Europe and the US. It wiped out Credit Suisse and Silicon Valley Bank as independent companies.

Richard Hunter, head of markets at Interactive Investor, said: “Lloyds has brought down the curtain on the quarterly banking reporting season with another show of strength, as it breezed past expectations on virtually all measures.

“Although not entirely isolated from some banking turmoil which has shaved share prices across the board, there is little to suggest from these numbers that the pressures being felt on smaller banks elsewhere globally is having a direct impact on domestic fortunes.”

As UK lenders stood apart from one international crisis, there were also hopes that they were leaving behind another, which struck last year and began closer to home. A general trend for a rise in mortgage lending showed the market moving on from the stress caused last September by the mini-Budget of the short-lived government led by Liz Truss, when thousands of fixed-rate mortgage offers were suddenly withdrawn.

The focus now moves to Threadneedle Street, where the Bank of England expected to raise interest rates by a quarter of a percentage point to 4.50% next week, in a move that will test banks and the home loan market.

Policymakers are fighting inflation that is unexpectedly stuck in double digits, with base rate rises designed to bring it toward their target of 2%. The way the monetary policy committee goes about that has major implications for lenders. Speculation will centre on the likely peak to the base rate, which affects the costs of mortgages and loans paid by consumers.

As Lloyds looked ahead in its update today, it said its guidance for the rest of the year assumed that “the Bank of England accommodates above-target inflation in the medium term, recognising the economic costs and financial stability risks that might arise from a rapid return to the 2% target.”

Lloyds shares slipped 0.4p to 47.3p. Metro Bank’s stock added 2.3p to 99p. One Savings Bank was up 7p to 489p.

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