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Barclays says UK set for best year since 1948 as profits surge

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Oscar Williams-Grut
·Senior City Correspondent, Yahoo Finance UK
·4-min read
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A Barclays bank branch in central London. Photo: Alessia Pierdomenico/Reuters
A Barclays bank branch in central London. Photo: Alessia Pierdomenico/Reuters

The chief executive of Barclays' (BARC.L) has said the UK economy is on track for its best year since the aftermath of World War II.

"We estimate the UK economy will grow at its fastest rate since 1948," Jes Staley told the BBC on Friday. "That's pretty spectacular."

Staley told journalists on a call on Friday morning that the bank was seeing surging spending data since the UK economy began to reopen at the start of the month.

"We see quite a robust economic recovery in 2021," he said. "We think that will carry on to 2022."

READ MORE: Mortgage boom helps Lloyds Bank beat forecasts with £1.9bn profit

The comments came as Barclays reported a surge in first quarter profits that beat analysts' forecasts. 

The bank made a pre-tax profit of £2.4bn ($3.3bn) on revenues of £5.9bn in the first quarter of 2021. Analysts had expected Barclays to report a pre-tax profit of £1.75bn on revenue of £5.15bn. 

Staley said it was Barclays highest quarterly profit in a decade and pointed out that profits were three times higher than they were in the same quarter a year earlier.

Booming business at Barclays' investment bank helped the lender offset weakness within its consumer business. Banking fees and equity trading income rose strongly as the investment bank enjoyed the benefits of a recent IPO boom. 

Strength in investment banking offset challenges at Barclays dominant consumer business, where lockdown led to lower spending on its cards.

Watch: Barclays Chief India Economist Bajoria on India's Growth Outlook

READ MORE: Property boom and sunny UK outlook help HSBC profits jump 79%

"Since the early days of the pandemic last year, our diversified business has demonstrated the resilience critical to ensuring Barclays’ financial integrity," Staley said in a statement.

While revenues and profits beat forecasts, costs were higher than expected. Operating costs were £3.5bn in the quarter, which was 5% higher than expected. Analysts at Jefferies said it was "surely the latest investment controversy".

Shares slumped 5.5% in London.

Barclays shares slumped despite better-than-expected profits and revenues. Photo: Yahoo Finance UK
Barclays shares slumped despite better-than-expected profits and revenues. Photo: Yahoo Finance UK

Staley said the higher costs were a result of successes at the investment bank. Bonus payments are tied to performance in the division, so better performance leads to higher payouts.

Staley flagged "significant new growth opportunities" negotiated in the first quarter, including a deal to issue Gap's (GPS) new credit card in the US and a point-of-sale finance partnership with Amazon (AMZN), which will be expanded to the UK later this year.

Barclays was the last of Britain's four major banks to report on first quarter performance. All three of the others — Lloyds (LLOY.L), HSBC (HSBA.L), and NatWest (NWG.L) — had beat forecasts thanks to a buoyant mortgage market in the UK and a sunnier economic outlook.

READ MORE: NatWest beats profit forecast as it unlocks £100m loss provision

Bumper mortgage growth helped Barclays grow its net assets by £3.6bn in the period — its biggest single quarter in history.

Rivals have been buoyed by the release of cash from loss provisions built up during the early stages of the COVID-19 pandemic. The unwinding has been prompted by a better economic outlook as the UK begins to exit lockdown. 

Barclays didn't reverse any provisions but set aside much less than expected. The bank added £55m to its credit provisions in the quarter, compared to an expected credit impairment of just over £500m.

"As we enter the next phase of this pandemic, we remain resolute in our commitment to support the economic recovery," Staley said. "From our spend data, which captures UK economic activity across our cards and acquiring businesses, we are already seeing encouraging early signs of recovery in some sectors, including those hit hardest by the crisis.

"While evidence of recovery is encouraging, we have continued to take a cautious view of the impact of the pandemic on the business."

Barclays recently completed a £700m share buyback. Staley said the bank would "give further guidance on distributions when appropriate."

Watch: What are negative interest rates?