High street lender Santander warned of a "changeable and potentially more challenging" economic outlook amid the fallout from the Brexit-hit pound as it revealed lower first- quarter UK profits.
The pound's plunge since the Brexit vote left its Spanish owner Banco Santander nursing an 8% fall in UK profits when translated into euros, at 416 million euros (£354.5 million).
In the UK arm, reported profits were 1% lower at £525 million for the first three months of 2017 as it took a further £32 million charge to cover claims for payment protection insurance (PPI) compensation.
It added that net mortgage lending fell by £400 million after withdrawing some of its most competitive rates at the end of last year.
Chief executive Nathan Bostock said the group was bracing for a tougher 2017 as Brexit-fuelled inflation from the weak pound hits consumer spending power.
He said: "Looking ahead, we anticipate a changeable and potentially more challenging macro environment."
The group said it expects UK growth to remain "solid" in 2017, but added that clouds are beginning to appear after an initially resilient performance since the Brexit vote.
It warned: "Higher inflation, largely from the lower value of sterling, could reduce households' real earnings growth.
"This, and a potentially more challenging macro environment going forward, adds a degree of caution to our outlook."
Santander said its extra PPI charge is set to cover costs until the deadline for claims in August 2019, which will draw a line under the industry's costly mis-selling scandal.
With the PPI charge and £25 million of other one-off regulatory costs stripped out, underlying UK profits were 6% higher at £582 million.
Its mortgage lending was lower after pulling competitive deals in the previous three months and as first-quarter figures a year earlier were boosted by the buy-to-let borrowing rush before April's stamp duty increase.
Santander added that it would "continue to focus on customer service in what remains a highly competitive market", although mortgage approvals rose in the first quarter.
The group also expects slower growth in lending to businesses over the year ahead as Brexit uncertainty takes its toll.
It is keeping a tight lid on costs amid an ongoing drive to slash £100 million from costs this year.
The wider Banco Santander group posted a better-than-expected 14% leap in first-quarter net profit to 1.87 billion euros (£1.59 billion) as strong growth in Brazil offset the lower UK earnings.
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