Do Lloyds bank’s rosy figures show the UK is about to boom?

The bank has the capacity to increase its lending to businesses, which could use the available funds to boost a torpid economy. But Rachel Reeves must also show she’s serious about growth. She has more to prove than Lloyds boss Charlie Nunn

Lloyds constantly tells us it is ‘backing the British economy’ to which the obvious riposte is ‘prove it’ (PA Wire)

Britain’s biggest lender looks sleek, smart, even sexy – and yes I mean it, however strange it feels to be saying that about Lloyds, of all banks – under Charlie Nunn.

Once a very boring business, it had the City’s scribblers gushing like a gaggle of gold traders as the price of the precious metal heads for the stars, reporting a forecast busting 12 per cent jump in pre tax profits.

Jonathan Pierce, an analyst at Jeffries, said the event “couldn’t have gone much better”. High praise indeed. But perhaps merited given the backdrop of falling interest rates. You still need to pay depositors so you can fund your lending. Lower rates give you much with less room to create a margin.

However, while this is by far the most UK focussed of the big four banks, Nunn has smartly diversified the business so it isn’t in as tied to the interest rate cycle as it was, buffing up its wealth management and pension operations, making inroads into the “mass affluent” market.

Old school banking still manners, of course. But Lloyds has been doing well with that, too, even taking into account those interest rate cuts. And it remains confident despite budgeting for two further reductions this year (a lot of people will be very happy if it’s right).

Pierce, for one, agrees that prospects are bright, noting that Lloyds sets its guidance “prudently” (in other words, Nunn is good at managing expectations down so Lloyds can more easily beat them). He thinks Lloyds is capable of throwing off between £6bn and £7bn of capital, and perhaps more, much of which will be kicked over to shareholders through higher dividends and share buybacks.

All well and good. But critics will want to see some of that embarrassment of riches – with a further boost to come if the Bank of England moves forward with plans to reduce the level of capital banks have to hold – directed towards growing lending.

Lloyds constantly tells us it is “backing the British economy” to which the obvious riposte is “prove it”. To that end, it trumpeted gross new lending to businesses with turnovers of less than £100m – so smaller businesses – of £7.4bn.

File under big impressive number that doesn’t mean much. To give some context to it, Lloyds says this is an increase over last year and that it is growing the business it does with this important sector faster than the market.

The bank, meanwhile, says that it is planning to lend £35bn to business as a whole this year, of which £9.5bn will be made available to small- and medium-sized enterprises.

If this genuinely is the bank turning the taps on, it will be a welcome development. Consumers and businesses alike have engaged in de-leveraging over the past couple of years. No wonder. The rapid interest rate rises that followed the energy driven inflation spike of 2022, when the Consumer Prices Index (CPI) peaked at an appalling 11.1 per cent, made borrowing much more expensive. Paying down loans made all sorts of sense.

There is clearly now room for business to gear up, and maybe consumers too, if they can find willing lenders. That would be good news for the economy, assuming the money is put to good use. It could pull help to pull Britain out of its current torpor.

However, the government, which keeps telling us how committed it is to growth, must play its part. Its decisions have pulled the rug out from under businesses and consumers alike. Take increasing employer national insurance contributions (Nics), in other words, the tax on jobs. This sharply increased costs to the former and they cut head counts. Worries about employment played a key role in a record run of negative consumer confidence figures. Borrowing to fund big ticket, economy boosting purchases is the last thing you want to do if you’re worried about your job.

Reeves has something to prove, too. And more than does Charlie Nunn. But one of her better decisions – yes, she has done something right – was to resist the demands that she increase taxes on banks, over and above the aforementioned tax hikes. At least for now.

That pressure on her to do that hasn’t gone away. It is a siren song that will be heard every time a bank produces results like the ones Lloyds has. The singers will crank up the volume if the others follow Lloyds’s lead and produce similarly impressive numbers. They will point, with some justification, to the extraordinary level of support provided by the taxpayer during the financial crisis, when the entire sector came frighteningly close to collapse, taking the global economy down with it.

Putting some more flesh on the bones of those boasts about its deep commitment to “backing Britain” would be a fine way to quiet them down. Lloyds and its shareholders would ultimately benefit, too.

Time for Mr Nunn to put his bank’s money where his mouth is.