Barclays chief dismisses recession scaremongers and calls for calm

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Business begins to feel the pinch

The chief executive of Barclays, Matt Barrett, appealed for calm yesterday and rejected fears of a recession as he delivered an upbeat assessment of the prospects for the UK economy.

"A more balanced perspective is needed than seems to prevail generally. There is cause for caution, not alarm," he said. "Fears of a severe slowdown are overblown."

The comments were made before the Bank of England cut interest rates by a quarter point in a bid to prop up the economy amid a deteriorating outlook in the US and Europe. Mr Barrett later said he was surprised by the Bank's move, although he had expected a cut in UK rates later in the year.

Half-year results at Barclays disclosed a 25 per cent increase in provisions against bad debts, to £498m, although this was in line with analysts' expectations. The proportion of non-performing loans was flat. Barclays is among the banks most likely to suffer if corporates and small businesses default on loans.

John Varley, the group's finance director, said the underlying rise in provisions was only 10 per cent, in line with loan growth. He said: "If anything, we are more optimistic about the UK economy today than we were six months ago."

Barclays predicted that UK GDP growth would be almost 0.5 per cent higher than the consensus forecast of 2 per cent. It based its confidence on the expectation that US growth would rebound in the second half of the year in response to rate cuts. In the UK, domestic demand remained "very firm", while all measures of housing market activity and inflation were buoyant.

"People feel wealthy," Mr Barrett said. "Households' assessment of their financial position is at a record high."

Manufacturing optimism, while weak, was rising, it said, and manufacturing output had not fallen as much as expected.

Michael Lever, banking analyst at HSBC, said: "[Barrett] is right in his view – caution not alarm – and that will be reinforced by the rate cut. I felt reassured by the comments on credit quality. Essentially this is a good environment for banks."

Barclays shares closed up 3.9 per cent at 2,161p as the City warmed to a 16 per cent rise in pre-tax profits, to £1.9bn, adjusted pro forma for the acquisition of the Woolwich building society last year.

The result was buoyed by a strong performance in debt issuance and fixed income trading at Barclays Capital, the investment banking unit. But the inclusion of the Woolwich dampened group margins, which fell to 2.99 per cent from 3.17 per cent. Annual cost savings from integrating Woolwich were revised to £400m, up from £240m.

Mr Barrett dismissed rumours that Barclays was considering making an acquisition in investment banking, and played down suggestions it was actively seeking a merger on the Continent in the wake of the freeze on UK consolidation imposed by the Government block blocking Lloyds TSB's takeover of Abbey National.

"I don't want management distracted by the exotica of doing deals," Mr Barrett said.

He also said he was "worried" by the Government's proposals, unveiled in a White Paper this week, to destigmatise personal bankruptcy.