Questions about whether household finances are robust enough to stomach an interest rate rise will cloud a week of improving results from British banks this week.
With the market now almost certain the Bank of England will begin to lift rates for the first time since the financial crisis in November, Lloyds will kick off the updates on Wednesday with an expected fall in costs linked to asset sales and conduct issues.
Analysts covering Lloyds expect the bank to report third-quarter profits before tax of £1.6bn, around double the amount it made a year ago, on net interest income around 10 per cent higher at £3.1bn.
Investec analyst Ian Gordon expects Lloyds to book around £249m in one-off costs linked to the acquisition of credit card provider MBNA and a rise in bad debts, yet believes the bank will keep impairments below £800m for the third consecutive year.
The rosy outlook for credit quality was supported last week by an upbeat trading statement from Virgin Money, which said arrears were steady even as it extended more credit to borrowers and house buyers.
Barclays will follow on Thursday, with its investment banking arm and a fall in big one-off costs set to help deliver a 59 per cent rise in pre-tax profits to £1.3bn.
Berenberg, which upgraded Barclays to a “hold” last week, believes the UK banks are nevertheless vulnerable to a consumer slowdown when interest rate rises start to bite.
“While consensus expects wider margins and benign credit conditions, we believe household indebtedness impedes the durability of rate rises,” the analysts wrote. “Rising rates typically herald the end of credit cycles and, in turn, the start of banks’ underperformance.”
RBS, whose shares are at their highest in almost two years, will update investors on Friday. Analysts have pencilled in pre-tax profits of £1.1bn for the quarter, compared to a loss a year ago when it booked a series of restructuring and litigation costs.
Metro Bank will also issue an update on Wednesday.