No recession and lower rates on way, predicts mortgage giant Lloyds Bank

BRITAIN’S biggest mortgage lender offered hope to the nation’s homeowners today and predicted the UK will no longer fall into recession next year.

Lloyds Banking Group said Bank of England interest rates should peak at 5.5% -- far below the 7% some in the City were fearing just weeks ago.

It also predicts the economy will grow slightly this year, and that unemployment will stay low, a helpful view from an organisation with as much financial data as any company in the country.

While CEO Charlie Nunn admits “economic anxiety has increased” there is only a small number – perhaps 1% -- of customers that are in true distress.

He encouraged those that are to get in touch with the bank and promised there are ways to avert disaster, such as agreeing new deals now but moving to lower rates if they become available.

Nunn said: “We know that rising interest rates, cost of living pressures and an uncertain economic outlook are proving challenging for many people and businesses.”

Today Lloyds, which owns the Halifax and Scottish Widows, reported half-year profits up 23% to £3.87 billion. A dividend, which goes to hundreds of thousands of small investors, of 0.92p a share will be paid. That is nearly £600 million in total.

The bank has set aside £700 million to deal with bad loans – on top of £1.5 billion last year – which indicates some level of concern about customers defaulting on debts.

Rival banks Barclays and NatWest report results tomorrow and Friday, with NatWest’s results plainly going to be overshadowed by the sudden departure of CEO Alison Rose.

Nunn said that he respected Rose and will miss her.

Lloyds said it does not disclose how many accounts it closes each year, but Nunn noted: “With respect to Lloyds, we are very clear at the choice we make. We don’t include looking at people’s personal or political beliefs. We are comfortable our policy is the right one.”

New rules on customer service come in on Monday that requires all firms regulated by the Financial Conduct Authority to demonstrate how they ensure good outcomes for clients.

Bank shares took a hit today, with Lloyds down 1p to 45p. NatWest fell 8p to 242p. But the City was largely reassured by the Lloyds figures and regard Nunn as a calm, smart leader.

Richard Hunter, Head of Markets at interactive investor, said: “Despite something of a slowdown in the second quarter as was largely expected, for the half-year as a whole Lloyds has again shown its financial mettle. Indeed, Lloyds upped a number of guidance measures in its outlook, such as the Return on Tangible Equity number to over 14% from a previous 13%.”

Brokers at Jefferies say the results “tick the boxes, in our view”.

Banks have been under pressure from politicians for failing to pass on interest rate rises to savers while mortgage costs go up.

Bank analysts note that profit margins remain much lower than for many other industries. Lloyds net interest margin – the gap between savings and loans – is 3.14%, down a little on last time.