Families are spending an average of £89 more a month on energy, food and fuel than they were before the pandemic, Lloyds Banking Group said in a financial update, as it laid bare the impact of surging inflation on everyday customers.
Lloyds’ chief executive, Charlie Nunn, said about 20% of the bank’s customers had had to adapt their spending “significantly” to rising prices, forcing them to refrain from purchases such as white goods and computers.
He added that customers had cancelled or blocked 2.2m subscriptions services such as Netflix since the summer of 2021, while about 1% of Lloyds customers were “really struggling to make ends meet”.
UK households are being squeezed by soaring inflation, which hit a 40-year high of 9.4% last month.
The figures came as Lloyds revealed it had struggled to boost profits in the second quarter, amid fears that rising prices could make it harder for borrowers to keep up with loan and mortgage payments long-term.
The country’s largest mortgage lender, which is considered a bellwether for the British economy, took a £200m charge between April and June as it put aside more money to protect the bank from potential defaults. That compares with the £374m it released during the same period last year.
However, Nunn said the worst-off customers would not have borrowed money from the bank, and so would not be at risk of defaulting. He added that hundreds of staff were being trained to help struggling families manage their finances, while the bank stressed that the number of customers in arrears remained at “low levels”.
The charge linked to potential defaults mostly offset an increase in income from loans and mortgages related to a jump in interest rates. Pre-tax profits for the three months to the end of June were in line with the same period last year at just over £2bn, exceeding analyst estimates of £1.6bn.
UK banks have largely benefited from nine consecutive months of interest rate rises by the Bank of England, where policymakers have been trying to get soaring inflation under control. Rising rates are usually good news for bank finances, since banks are able to charge borrowers more for loans and mortgages, which in turn increases their net interest margin – a key measure of profitability and growth.
Lloyds’ net interest margin – the difference between what it earns from loans and pays for deposits – rose to 2.87% in the second quarter compared with 2.5% last year.
However, Nunn said mortgage lending – which grew £2.2bn over the quarter – was likely to slow over the coming months. “We are predicting a slowdown in mortgage growth and also a slowdown in house prices, but … we are also thinking we can continue to grow our lending [by] single digits in the next 12-18 months,” he said.
Lloyds’ second-quarter figures came amid an economic slowdown, with the bank predicting little or no growth in gross domestic product over the rest of the year, and a 0.5% increase in 2023. That forecast will partly be affected by inflation peaking at 10-11%, before declining in the latter half of next year.
Lloyds executives said they were still encouraged by forecasts for unemployment, which were expected to stay steady at just under 4%, while interest rates were expected to peak at about 2.25%.
“It is a very different shock that we’re experiencing, relative to the last 25 years in the UK history. But there’s a lot to learn from some of those previous shocks that the economy has been through,” Nunn said.
He said it was worth considering how emerging economies had dealt with similar economic situations in recent years. “I take a lot of personal experience from those experiences in places like Mexico, India, parts of other parts of Asia, where we saw really significant inflation, but employment rates [are] high. There’s quite a lot to be learned from that.”