The banking giant, which ranks as the UK’s biggest mortgage lender, said it was seeing increasing signs that customers are battening down the hatches, building up savings for a financial buffer and axing non-essential subscriptions.
But it said it had yet to see a rise in borrowers falling behind with repayments, despite the inflationary pressures.
The group, which also owns Scottish Widows, posted a 6 per cent fall in half-year profits to £3.7 billion after setting aside £377 million amid the rising cost of living and an increasingly uncertain economic outlook.
It said £95m of its half-year impairment charge was due to a weaker economic backdrop in the UK as rising inflation takes its toll on consumer spending.
But the profit haul was better than the result expected in the City and on an underlying basis, stripping out exceptional costs, Lloyds saw profits rise 34 per cent to £4.1bn in the first six months of 2022.
Despite the wider economic woes, the bank raised its full-year outlook across a raft of performance measures.
Chief executive Charlie Nunn told investors: “While the world has changed significantly since February, our strategic focus remains clear and disciplined. Our strong financial performance demonstrates the resilience of our business model and customer relationships, and has enabled us to enhance guidance for 2022.
“Just as we remain well-placed to withstand the current macroeconomic uncertainty and continue to generate significant capital for our shareholders, so too do we remain committed to maintaining the support we give to our customers every day as they adapt to the challenges they face.”
Sophie Lund-Yates, equity analyst at investment platform Hargreaves Lansdown, said: “Lloyds has stepped into the half-year court fighting. Half-year results show a serious improvement in net interest income, as rate rises and accelerated UK consumer activity boosted performance, with the difference between what Lloyds earns in interest on loans and the amount it pays in interest on deposits, moving in its favour.”
John Moore, senior investment manager at wealth manager Brewin Dolphin, noted: “Lloyds’ results have come in ahead of expectations, with rising interest rates helping its net interest margin and little sign of a deterioration in credit quality.
“However, there is a note of caution in today’s update about the effects of inflation and the impact this will have on consumer spending, with more cash being put aside to cover potential bad loans. Still, Lloyds is in reasonable shape to weather a tougher macro-economic environment, with its restructuring programme keeping costs in check and new services in the offing.
“But, there are still loose ends to tie up - for instance, its ownership of Scottish Widows - and investors will be looking for updates on these fronts in the next set of statements.”
Michael Hewson, chief market analyst at CMC Markets UK, added: “Management is right to remain cautious about the uncertainties facing the UK economy, while at the same time remaining optimistic about the full-year outlook.”