LLOYDS Banking Group has adopted a more downbeat stance on the effects of Brexit uncertainty as one-off items caused its first-quarter profits to fall short of analysts’ forecasts.

The chief executive of the Bank of Scotland owner, Antonio Horta-Osorio, swapped the more upbeat tone of his recent comments on the UK’s resilience in the face Brexit with a warning that the protracted uncertainty “could further impact the economy”.

The Portuguese banker’s comments came as the UK’s biggest mortgage lender reported statutory profits after tax of £1.2 billion for the three months of last year, up two per cent compared with the first quarter of 2018 but behind analysts’ consensus of £1.39bn.

Lloyds was weighed down in the first quarter by costs associated with its dispute with Standard Life Aberdeen (SLA) over the attempt by Lloyds’ Scottish Widows business to rip up a £109bn fund management deal held by the Edinburgh-based investment giant.

Lloyds, which could face a £300m compensation bill from SLA after an arbitration process ruled in favour of the investment house, provided for the dispute among charges related to volatility and other items totalling £339m in the first quarter. The bank did not put a specific value on the charge relating to the Widows contract.

In addition, the bank made a further provision of £100m to cover payment protection insurance (PPI) compensation claims, down on the £200m it set aside for PPI a year ago.

Laith Khalaf, senior analyst at stockbroker Hargreaves Lansdown, said: “Overall it’s a familiar story for Lloyds – the bank’s put in a solid performance, slightly marred by some one-off items.

“The share price has performed well so far this year, but even so Brexit continues to dominate sentiment, as Lloyds is indelibly plugged into the domestic economy. With a yield well over 5%, though, Lloyds still looks like a bit of a cash cow for income-seekers.”

However, Mr Khalaf noted: “Lloyds’ decision to terminate its business with Standard Life Aberdeen is costing the bank a pretty penny.”

Excluding one-off items, Lloyds’ underlying profit before tax increased 8% to £2.2bn - ahead of company-compiled forecasts from analysts - boosted by a rise in net income and lower operating costs.

While its net interest margin – a key performance measure – was down marginally at 2.91%, the bank’s net income increased by 2% at £4.4bn compared with the opening quarter of last year. That came as it brought down total costs by 4% to £1.98bn.

Lloyds’ NIM was higher than the 1.89% reported last week by Royal Bank of Scotland for the first quarter. But like Royal it too counted the cost of competition in the mortgage market, with net interest income falling by nearly three per cent to £3.1bn compared with the same period in 2018.

However, bosses may have later been disappointed, if not surprised, to see the Bank of England leave the base rate unchanged at 0.75%.

George Culmer, chief financial officer at Lloyds, had earlier told reporters that the bank does not now expect a rate rise until next year at the earliest, having previously assumed there would be an increase towards the end of 2019.

Earlier this week, Lloyds was boosted when the Bank of England’s Prudential Regulation Authority reduced its capital buffer. It will allow the bank to free up capital of £1bn, leading to speculation that further share buybacks could be on the cards.

Mr Horta-Osorio said: “In the first three months of 2019 we have again delivered a strong business performance with continued strategic progress, increased statutory and underlying profit and strong financial returns. While Brexit uncertainty persists, and continued uncertainty could further impact the economy, I remain confident that our unique business model, and in particular our market leading efficiency and targeted investment, will continue to deliver superior performance and returns for our customers and shareholders.”

Shares closed down 0.8p at 62.8p.