Lloyds Banking Group sees its quarterly profits drop by more than a quarter

It came in slightly below forecasts with analysts expecting a quarterly profit of £1.7bn.

Lloyds said the decline was partially driven by lower net interest income – meaning the difference between what it generates from loans and pays out for deposits – which was down a tenth to £3.2bn.

This was expected as mortgage costs eased from the highs hit during the start of last year and as more savers moved cash into accounts with higher returns.

The group’s chief executive Charlie Nunn said the quarterly results “provides us with further confidence around our strategic ambitions and 2024 to 2026 guidance”, and assured the bank was “continuing to support customers”.

Meanwhile, new projections provided by the bank point to an improved economic outlook.

Average house prices across the UK are expected to rise by 1.5 per cent this year, with Lloyds previously forecasting a 2.2 per cent fall.

It also expects the UK’s unemployment rate to average at 4.3 per cent over 2024.

Richard Hunter, Head of Markets at interactive investor, commented: “Lloyds has kicked off the quarterly reporting season for the banks in generally uninspiring style, although there are some signs that performance could tick higher as the year progresses."

He continued: “Interest rate reductions are still expected this year, which could shift some customer lending activity towards higher margin mortgage products, where there has been some pressure given pricing and demand limitations as consumers refinance.

Mr Hunter added: “Lloyds had expected some of the subsequent pressure on the Net Interest Margin (NIM) to ease and while the latest NIM figure of 2.95 per cent compares with a slightly higher 2.98 per cent in the previous quarter, it is above the expected 2.93 per cent and as a crucial metric, could show that any pace of decline is starting to stabilise."

"Meanwhile, the move towards a more digital business will reap large rewards as the process evolves, with the closure of office space and indeed branches a reflection of the times as customer behaviour changes.

"This improves the longer-term outlook, although in the more immediate future there are other challenges to grapple with, not least of which is the perception that Lloyds is something of a barometer for the UK economy.

"As such, the group continues to grow other lines of revenue such as its wealth offering to help offset the lesser income which a lower interest rate environment could bring.”

He added: “In the meantime, an improvement of 24 per cent in the share price over the last six months has removed any recent weakness, such that the shares have risen by 5 per cent over the last year, as compared to a gain of 1.7 per cent for the wider FTSE100.

He said the market consensus of the shares as a “buy” is likely to remain intact.