Profit before tax at Lloyds Banking Group has fallen by 28% year-on-year, having broken its previous record last year.

The group, which has subsidiaries including Halifax and Bank of Scotland, said that despite this drop, its performance was in line with analysts’ expectations on £1.7bn.

Lloyds also saw its operating costs jump by 11% to £2.4bn in the three months to 31 March, while its profit before tax also dropped by 9% to £1.2bn in the same period.

The banking group has pointed towards higher business costs as the reason for these reduced profits, including a sector-wide Bank of England levy and lower net interest income.

It comes as Lloyds recorded annual pre-tax profits of £7.5bn in 2023.

Group chief executive at Lloyds Banking Group, Charlie Nunn, said: "The group is continuing to deliver in line with expectations in the first quarter of 2024, with solid net income, cost discipline and strong asset quality. Our performance provides us with further confidence around our strategic ambitions and 2024 and 2026 guidance.

"Guided by our purpose, we are continuing to support customers and successfully execute against our strategic outcomes, as highlighted in the third of our strategic seminars last month. This underpins our ambition of higher, more sustainable returns that will deliver for all of our stakeholders as we continue to help Britain prosper."

Looking forward, the group said it expects its operating costs to reach £9.3bn, along with a £100m Bank of England levy.

Furthermore, it added that it expects to record a return on tangible equity of 13%, while risk-weighted assets will reach between £220bn-£225bn.

Head of markets at interactive investor, Richard Hunter, added: "There are certainly some signs that the backdrop could be improving. Interest rate reductions are still expected this year, which could shift some customer lending activity towards higher margin mortgage products, where there has been some pressure given pricing and demand limitations as consumers refinance.

"In the meantime, an improvement of 24% in the share price over the last six months has removed any recent weakness, such that the shares have risen by 5% over the last year, as compared to a gain of 1.7% for the wider FTSE 100. This update has done little to excite supporters of the stock, with some weakness being experienced in the price in early trade, although as a longer-term play based on shareholder returns, improving prospects and a historically undemanding valuation, the market consensus of the shares as a buy is likely to remain intact."

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