Lloyds Banking Group has seen its profits drop by more than a quarter in recent months, following a bumper 2023 which saw its earnings hit record highs.

The lender said its statutory pre-tax profit for the first three months of the year hit £1.6 billion, down 28% from the £2.3 billion reported during the same period last year.

It came in slightly below forecasts with analysts expecting a quarterly profit of £1.7 billion.

Lloyds said the decline was partially driven by lower net interest income – meaning the difference between what it generates from loans and pays out for deposits – which was down a 10th to £3.2 billion.

This was expected as mortgage costs eased from the highs hit during the start of last year and as more savers moved cash into accounts with higher returns. 

The group’s chief executive Charlie Nunn said the quarterly results “provides us with further confidence around our strategic ambitions and 2024 to 2026 guidance”, and assured the bank was “continuing to support customers”.

Meanwhile, new projections provided by the bank point to an improved economic outlook.

Average house prices across the UK are expected to rise by 1.5% this year, with Lloyds previously forecasting a 2.2% fall.

It also expects the UK’s unemployment rate to average at 4.3% over 2024.