Lloyds takes £151m hit from Iran war as it forecasts rise in UK unemployment

Lead

Lloyds Banking Group has cautioned that the economic fallout from the conflict in the Middle East could cost it £151m, as the bank issued a downbeat outlook for the UK economy, forecasting rising unemployment and inflation alongside slower growth. The warning came as NatWest reported a 12% increase in operating profits but also set aside £140m for the impact of the war.

The FTSE 100 lender, which owns Lloyds Bank, Halifax, and Bank of Scotland, said its base case for UK gross domestic product growth is only 0.5% this year — lower than the 0.8% forecast by the International Monetary Fund earlier this month. The bank also projected that the unemployment rate would climb to 5.6% by the second half of the year. According to the Office for National Statistics, unemployment stood at 4.9% in February, though it has said it expects the rate to rise because of the conflict.

Coverage Comparison

The two principal reports — both from The Guardian — focus on the two major UK banks' responses to the war in the Middle East. The first, centred on Lloyds, highlights a "stagflationary" scenario — rising inflation coupled with slower growth — and quotes chief financial officer William Chalmers on the economic environment. The second, focusing on NatWest, notes the lender's profits beat expectations but still felt the strain of geopolitical risk and weaker equity markets.

Both sources agree on the key figures: the £151m charge at Lloyds, the £140m charge at NatWest, and the forecasts for GDP growth (0.5% for Lloyds, 0.4% for NatWest). They also corroborate that the market expects at least two interest rate hikes by the Bank of England this year, whereas both banks believe the central bank will hold rates at 3.75% throughout the year.

Key Claims

• Lloyds' £151m charge: According to The Guardian's report on Lloyds, the bank booked a £151m charge due to changing economic conditions. This figure was also referenced in The Guardian's article on NatWest, confirming multi-source agreement.
• NatWest's profit and charge: NatWest reported a 12% year-on-year rise in operating profits to £2bn in the first quarter, up from £1.8bn a year earlier, exceeding the analyst consensus of £1.9bn. It also took a £283m impairment charge, nearly half of which (about £140m) was attributed to a reassessment of its economic forecast.
• Economic forecasts: Both banks project sluggish growth: NatWest expects GDP growth of 0.4% this year, while Lloyds expects 0.5%. Unemployment is forecast to rise to 5.5% (NatWest) and 5.6% (Lloyds) by the second half of the year.
• Inflation expectations: Lloyds anticipates inflation reaching 3.9% by the end of the year, up from the current 3.3%, driven by higher energy prices — oil is above $114 a barrel. NatWest, in its base case, expects inflation to hit 3.5%.
• Interest rate stance: Both banks believe the Bank of England will keep the base rate at 3.75% this year. NatWest expects rates to stay at this level until at least 2030; Lloyds says it sees no hikes this year and no cut until the third quarter of 2027. This contradicts market pricing of at least two increases by the monetary policy committee by year-end.
• House prices: NatWest forecasts a modest 0.7% average rise in house prices this year, followed by contractions of 1.8% in 2027 and 0.5% in 2028.

Perspectives

• Lloyds' view: William Chalmers, CFO, told The Guardian: "This isn't a recessionary environment to be clear. It is a slowdown in growth expectation since the beginning of the year due to the Middle East conflict." He added that the market is "more aggressive" in expecting rate rises, but Lloyds does not expect the Bank of England to need to raise rates. The bank assumes a gradual de-escalation of hostilities over the year.
• NatWest's stance: Without a direct quote in the source text, NatWest's approach is conveyed through its financial results and impairment charge, which it links to "increased geopolitical risk and weaker equity markets." The bank's forecast of sustained rate holds suggests it aligns with Lloyds on the interest rate path.
• Bank of England's position: On Thursday, the Bank of England voted to leave the rate at 3.75% but warned of increases later this year, saying "higher inflation is unavoidable" as a result of the war in the Middle East. This is a notably more hawkish stance than the banks' expectations.
• Market expectations: The market is factoring in at least two rate rises by the MPC by the end of the year, a view that contrasts with the banks' predictions of no change. This divergence may reflect differing assumptions about the trajectory of the conflict.

Corrections and Context

It is worth noting that the Office for National Statistics' unemployment figure for February was 4.9%, and both banks' forecasts suggest unemployment will rise by roughly half a percentage point by the end of the year. These forecasts are base cases and could change if the conflict escalates or de-escalates significantly. The International Monetary Fund's GDP forecast for the UK of 0.8% was made earlier this month, prior to the banks' more pessimistic outlooks.