Lloyds income soar by a 3rd on enhance from greater rates of interest however it warns Iran struggle will hit UK economic system

Lloyds reported soaring profits in the first quarter as higher interest rates boosted income, but the lender warned of a deteriorating economic outlook sparked by the Iran war.

The lender’s pre-tax profits climbed by 33 per cent to £2billion in the three months to 31 March, up from £1.5billion in the same period a year ago. It came as Lloyds generated net income of £4.8billion, up from £4.4billion.

Mortgage lending rose two per cent to £324.7billion, while lending at Lloyds’ corporate and institutional division increased by 10 per cent. Unsecured loans to consumers jumped 15 per cent.

Net interest income – the difference between the interest it earns from assets and the interest it pays out – rose 8 per cent to £3.6billion, reflecting a higher net interest margin of 3.17 per cent, up 14 basis points year-on-year.

While buoyed by higher interest rates, Lloyds is looking to diversify its income away from those closely tied to the interest rate cycle and towards revenues from pensions, investments and insurance, where income rose 22 per cent.

This helped to offset a £151million charge Lloyds took reflecting a worsening economic outlook due to the war. 

Iran hit: Lloyds has warned that the conflict will slow GDP growth and trigger higher unemployment

The bank anticipates a reduction in the UK’s GDP and a higher unemployment rate, causing it to downgrade some of the scenarios that it uses to calculate future potential losses.

However, Lloyds said it was on track to meet its annual targets, having lifted guidance for net interest income in January to greater than £14.9billion. It also expects to make a return on tangible equity of greater than 16 per cent this year.

Chief executive Charlie Nunn said the bank had remained ‘resilient in the context of the current economic uncertainties… We are confident in our delivery for the year ahead.’

The motor finance scandal, in which customers were sometimes not told about hidden commissions, has dragged on Lloyds’ recent results.

Today it said it had not made any fresh provisions for compensation in the first quarter, but flagged there remain ‘a number of uncertainties,’ including operational costs and litigation ‘which could impact the ultimate outcome.’

Lloyds shares inched 0.12 per cent higher to 98.69p this morning.

Richard Hunter, head of markets at Interactive Investor, said: ‘The update is strong and dependable rather than shooting out the lights and given that Lloyds is often seen as a barometer for the UK economy, its progress has been hard-won. 

‘A neutral reaction at the open is therefore unsurprising, and may also reflect a pause for breath following a share price which has risen by 35 per cent over the last year, as compared to a gain of 22 per cent for the wider FTSE100, and by 88 per cent over the last two years. 

‘While such strength may have lessened some of its attraction in terms of valuation, this performance continues to validate the bank’s strategy and the market consensus of the shares as a buy will no doubt hold firm.’