Lloyds has said that the economic fallout from the Middle East conflict could cost it \u00a3151m amid rising unemployment and inflation and a slowdown in the housing market.<\/p>\n
The FTSE 100 group, whose brands include Lloyds Bank, Halifax and Bank of Scotland, issued a downbeat economic forecast that it said reflected the stagflationary consequences \u2013 the double hit of rising inflation at the same time as slower economic growth \u2013 for the UK and global economies.<\/p>\n
Overall, Lloyds expects its base case for UK gross domestic product growth to be only 0.5% this year, lower than the 0.8% forecast<\/a> by the International Monetary Fund earlier this month.<\/p>\n Lloyds\u2019s forecasts include a rise in the UK unemployment rate to 5.6% by the second half of the year. Last week the Office for National Statistics put the rate of unemployment at 4.9% in February<\/a> but said it expected that to climb because of the conflict.<\/p>\n The bank also said that increases in energy prices \u2013 the price of oil is now more than $114 a barrel \u2013 were pushing up inflation, with an expectation that the rate would hit 3.9% by the end of this year. UK inflation is running at 3.3%<\/a>.<\/p>\n However, Lloyds believes the Bank of England will not move to increase the base interest rate, which stands at 3.75%, this year, but will also not cut it until the third quarter of 2027. The market is factoring in at least two rate rises by the monetary policy committee by the end of the year.<\/p>\n William Chalmers, the chief financial officer at Lloyds, said: \u201cThis isn\u2019t a recessionary environment, to be clear. It is a slowdown in growth expectation since the beginning of the year due to the Middle East conflict.<\/p>\n \u201cIt is noticeable that the market is more aggressive in terms of expectations of interest rate increases. We are not expecting that as we expect the Bank of England will not need to. Much like the rest of the market we are assuming a gradual de-escalation of hostilities over the course of the year. That is the backdrop for the economic assumptions we have made.\u201d<\/p>\n Overall, the group booked a total \u00a3295m underlying impairment charge for the quarter, down on a \u00a3309m charge booked for the same period last year, which included the impact of the global tariff war.<\/p>\n Lloyds reported pre-tax profits of \u00a32bn in the first quarter, an increase of a third over the same period last year, well above analyst consensus of \u00a31.84bn.<\/p>\n The banking industry has benefited from the market turbulence caused by the Iran war, with Wall Street\u2019s largest lenders raking in nearly $50bn (\u00a337bn) in profits<\/a> in the first three months of the year.<\/p>\n Responding to questions over whether banks were profiteering, Chalmers said: \u201cBanks have had many years of very low margins, of low profitability in the context of a low rate environment.<\/p>\n \u201cThe sector always expected a gradual increase in the profitability of banks when rates rise. That is the way the financial services industry works. However, the profitability of banks has lagged the rise in rates by quite a lot. And it does not stop attractively priced products [for consumers].\u201d<\/p>\n