LLOYDS Banking Group has warned the outlook for the UK economy “remains uncertain” amid the “persistency and impact of higher inflation” as it reported a fall in profits for the first quarter of the year.

The Bank of Scotland owner this morning reported a 14 per cent fall in statutory profit before tax to £1.6 billion for the quarter ended March 31, higher than the £1.4bn forecast by analysts.

The drop in profits reflected an impairment charge of £177 million booked in anticipation of bad debts arising from the challenging economic backdrop. Lloyds had booked a net credit of £360m in the first quarter of last year when it released provisions for bad debts linked to the pandemic.

Annual UK consumer prices index inflation rose to 7% in February, and is forecast by the Bank of England to increase to 8% later this spring following this month’s 54% rise in the energy price cap.

Lloyds’ chief executive Charlie Nunn said: “Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation.

"We are proactively contacting customers where we feel they may need assistance and will continue to help with financial health checks and other means of support. We encourage customers, where affected, to get advice early and talk to us."

Shares in the bank were up around 2.5 per cent in early trading.

Russ Mould, investment director at AJ Bell, said: “Lloyds’ first quarter update reveals a lot about the state of the UK economy. The country has been getting back on its feet, which is reflected by an increase in lending and savings deposits for Lloyds. However, the outlook is less than rosy.

“It’s serious when a bank talks about proactively contacting customers that could be facing financial troubles to offer help and guidance.”