The week ahead: Banks and retailers in the foreshortened spotlight

Banking giants Lloyds and Royal Bank of Scotland will share the limelight with retailers Next and Morrisons during another shortened week for UK investors, with today being a stock exchange holiday.

Disappointing figures from Barclays showing a 9 per cent drop in quarterly profits have set a gloomy tone ahead of first-quarter updates from Lloyds and RBS on Thursday and Friday respectively.

Aside from recent performance, the updates from the part-nationalised pair will provide the City with its first chance to quiz the banks on the impact of the recent Independent Commission on Banking (ICB) report.

Lloyds tends to gives little financial detail in its Q1 updates. A year ago, it revealed it returned to profit for the first time since the financial crisis and remained in the black through 2010, reporting pre-tax profits of 2.2 billion against 6.3bn losses in 2009. However, it warned in annual figures earlier this year that its margins were under pressure as it gave a sobering outlook for the economic recovery.

RBS, which is 83 per cent owned by the state, remained in the red in 2010 with losses of 1.1bn, but returned to profitability in the fourth quarter and the market will be hoping this continued into 2011.

Sharply lower bad debts were behind the turnaround at the end of 2010, which offset slower investment banking revenues.

Morrisons - the UK's fourth biggest supermarket chain - is unlikely to have avoided the consumer spending squeeze but should still reveal a resilient performance when it posts first-quarter figures on Thursday.

Analysts expect quarterly sales at the group to better the recent 0.7 per cent decline seen at larger competitor Tesco, albeit with marginal growth.

Andrew Porteous at Evolution Securities is pencilling in like-for-like sales growth of 1 per cent excluding VAT, which implies negative volumes after inflation.

He said Morrisons' "Fuel Britannia" petrol offer was a canny move, with customer pockets hit hardest by soaring fuel costs.

Clive Black at Shore Capital said the group may also be benefiting as shoppers trade down, given the chain's value credentials.

The struggles of the high street will also come into focus on Wednesday when Next delivers a trading update for the first three months of its financial year.According to broker UBS, the clothing chain is expected to report a 5 per cent decline in like-for-like sales in the three months to the end of April, amid the squeeze on household incomes from the VAT hike and soaring input costs.

The City will also be looking for an update on input costs after Next warned its ranges could be up to 10 per cent more expensive this autumn and winter as rising commodity prices continue to hit the business.

Andrew Hughes, an analyst at UBS, said total sales, including new retail space and online, should show decent growth.

He said: "Although disposable income and consumer confidence are under pressure, the impact has been felt most heavily on large ticket discretionary spending."

Wednesday's interims from software group Sage will be watched for further news on a sales revival under the leadership of new boss Guy Berruyer.

The Newcastle-based firm returned to sales growth in the six months to September and maintained the improved performance in the final three months of 2010.

The FTSE 100 company has been benefiting as its target market - small and medium-sized businesses - begin to get back on track following the recession and financial crisis.

George O'Connor, an analyst at Panmure Gordon, believes improving conditions will have helped turnover rise by 2 per cent to 733.8 million in the half-year.

He is forecasting underlying interim earnings to edge up by 2 per cent to 185.3m, although this includes a near-1 per cent fall in the UK. The UK makes up about 20 per cent of its revenues, with America accounting for some 40 per cent..