Week ahead: Banks to report amid high inflation and interest rate fears

Customer behaviour and cost control are set to be top of the in-tray for the major banks as they update investors over the next week.

Barclays, Lloyds and NatWest are all set to update the markets in a bumper week for the sector.

Although priorities will vary slightly, there will be significant focus on whether the banks have felt any impact from rampant inflation and rising interest rates.

Last weekend, NatWest chief Alison Rose told the Sunday Times that defaults remain low and the group, which also runs Royal Bank of Scotland (RBS), has seen no noticeable rise in the number of people falling behind on payments.

Analysts at Jefferies have said they expect the boss to hold the group’s current guidance when it provides half-year figures on Friday July 29.

The business previously said it expected to reduce costs by around 3% over the next two financial years and progress against this target will come under significant scrutiny.

Rising costs, amid 9.4% UK inflation last month, will make attempts to maintain savings targets challenging over the year.

The banks will also be hoping to show robust mortgage demand after HM Revenue & Customs revealed house sales were cut by more than half in June against the same month last year.

Barclays will be particularly keen to highlight strong prospects in the mortgage sector after agreeing to buy specialist lender Kensington Mortgage Company in a roughly £2.3 billion deal last month.

Investors casting an eye over Barclays half-year figures on Thursday will also be keen to find out more about the impact of its blunder in March, which saw it issue £12.5 billion more securities than it is allowed by Wall Street regulators.

The bank said it took a £540 million provision to rectify the error in the first quarter.

However, analysts at UBS have warned that Barclays may have take a much larger charge, potentially up to £900 million, for the second quarter due to the impact of weakness in US markets.

The group will hope that higher than predicted revenues could offset any greater costs.

Experts said that higher interest rates and the steeper yield curve should be positive for interest margins and profits at all the banks but that will not necessarily result in an immediate improved performance.

Lloyds, which will update shareholders on Wednesday, is expected to deliver a pre-tax profit of around £3.2 billion, according to Russ Mould and Danni Hewson of AJ Bell.

However, this compares with £3.9 billion over the same half-year in 2021, while 2022 full-year profits are also expected to be lower year-on-year amid the fragile economic backdrop.

Press Association