The UK’s largest retail bank, Lloyds, is the first of the major UK banks to report its first quarter earnings, on 24 April. Barclays follows on 25 April with NatWest on 26 April and HSBC on 30 April.

Analysts forecast that Lloyds first quarter earnings will dip compared to the corresponding quarter last year. Specifically, the net interest margin is forecast to fall by around 30 basis points. The FCA investigation into allegations about auto loan mis-selling will be of interest to the press. Lloyds has however already set aside $450m.

Research from KPMG UK shows that banking executives are optimistic about overall Q1 business growth and profitability. On the other hand, inflation, interest rates and cost pressures are the biggest challenges that could weigh on earnings and business performance.

The survey found that almost 90% are confident when it comes to overall business growth in the first quarter. This is supported by a buoyant outlook on expected profitability (84%).

A majority (75%) report a positive outlook for the UK economy for the first quarter. But more than half (55%) cite inflationary pressures as their biggest challenge in Q1. This was followed by interest rates (49%) and cost pressures (31%).

UK banks may have reached short-term profitability peak: KPMG

Peter Rothwell, head of banking at KPMG UK, said: “The positive tone on Q1 performance comes off the back of a strong 2023 for bank profits. But the sector may have reached a short-term profitability peak. While earnings are expected to remain broadly healthy in 2024, they are forecast to be lower than last year.

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“While any delays to rate cuts should provide some support to net interest income, the weak UK economy will likely hinder growth. Results could reflect how higher rates and the continued cost of living challenges are impacting credit quality, which has proven resilient thus far. Given the challenging environment, we can expect a continued focus on costs throughout 2024, while recent consolidation in the sector could continue.

“It will also be interesting to see the extent to which earnings have enjoyed a boost from investment banking and trading operations, in line with the first quarter results of their US counterparts.”