Whereas the biggest banks in the US, such as JPMorgan Chase (JPM:NYSE) and Bank of America (BAC:NYSE), are heavily dependent on trading and investment banking for their profits, the UK’s big banks are mostly reliant on old-fashioned lending and deposit-taking.

Granted, both Barclays (BARC) and HSBC (HSBA) have sizeable investment banking operations, but generally speaking their results aren’t central to their parent companies’ overall performance.

That makes the Big Four, which includes Lloyds (LLOY) and NatWest (NWG), a good barometer of the health of the economy and the consumer.

Typically, the more confident businesses and retail customers feel, the more likely they are to want to borrow money, while the less confident they are the more likely they will build up their cash and savings.

Consumer spending is worth around 60% of UK GDP (gross domestic product) – to put that into context if we each spent £1,000 more this year than we did last year the economy would grow by an extra 1% according to the ONS (Office for National Statistics).

So, what does the latest set of bank results tell us about how confident or otherwise people are feeling, and what might that mean for the economy?

BEARING UP

When Lloyds reported its interim results last week (24 July), they were so unexceptional one broker described them as ‘very in line’.

Underlying pre-tax profit was ahead of estimates but the majority of the beat came from the release of provisions for bad loans and lower remediation costs, so reported profit was 1% above the consensus.

Loan and deposit growth was pedestrian at 3% and 2% respectively, with the bank saying its retail business continued to show ‘resilience’.

It also said credit quality was good, and consumers had shown ‘strength in the context of inflationary pressures’, although with regard to commercial lending it noted the relatively high level of interest rates could impact credit quality in sectors which rely on consumer discretionary spending, such as hospitality and retail.

NatWest’s results (25 July) were also flattered by provisions, although it reported a healthy increase in net interest income – the margin it makes on taking in deposits and lending that money out – and raised its revenue guidance while announcing an increased dividend a share buyback.

Non-interest income, such as fees and commissions, was above forecasts and also contributed to the results, which was just as well as growth in loans and deposits (excluding Sainsbury’s Bank) was minimal.

The bank’s base case is for the economy to slow in the near term, while its downside scenarios – which it now gives a higher probability than its upside scenario – is for the lagged effect of inflation and geopolitical uncertainty to lead to a drop in business investment and consumer spending, or in the worst case ‘an extreme fall in GDP with policy support to facilitate a sharp recovery’.

Finally, Barclays beat expectations for the half-year (29 July) thanks in part to its investment banking operations and promised to return £1.4 billion to shareholders through higher dividends and a share buyback.

However, once adjusted for the inclusion of Tesco Bank, performance in the core UK business looked softer than anticipated, while provisions for credit losses rose as a result of the acquisition.

Loan growth was minimal, led by mortgages and credit cards, while credit card impairment charges were more than three times the level of a year ago due to a worsening economic outlook and the Tesco Bank acquisition, although the bank also described customer behaviour as ‘resilient’.

Overall, we get the sense the banks are hoping for a recovery in the economy, and through that a pick-up in demand for new loans, while at the same time preparing for a slowdown and even notching down their outlooks, which may explain why the shares have lost momentum.

SO, HOW ARE CONSUMERS FEELING?

Earlier this month, consultancy PwC published its quarterly consumer sentiment survey which, if you had only read the headline, would suggest all is well.

After three quarters of back-to-back decline, sentiment has ticked up this summer and is now above the long-run average which the survey suggests is ‘encouraging for operators in the retail and leisure sectors’.

However, behind the headlines it turns out only one age group is feeling more optimistic than it was this time last year, while most other groups feel less confident, with rising worries over either inflation or job security.

‘Only 25 to 34-year-olds and the most affluent are now better off than they were 12 months ago, with every other demographic and socioeconomic group feeling worse than last year,’ says the report.

‘In previous surveys there has been a steady improvement in household finances since 2022, but this has stalled since the start of 2024. Household finances are now worse than immediately after the general election as well as in the first half of 2024.

‘Again, 25 to 34-year-olds buck this trend with stronger household finances than the UK average. Although encouraging, it’s been at the expense of under 25s and over 45s, who have all seen their finances deteriorate in the last 12 months.’

The survey suggests the 25 to 34-year-old group are an outlier because they benefit from National Insurance rate cuts, National Living Wage increases and more stable job prospects, while an increasing number have no mortgages or families to worry about.

This is in contrast with all the other demographics who face concerns around inflation, job prospects and worsening household finances, says the survey.

Making things even worse, household finances have stalled since the beginning of 2024, particularly for older and less affluent consumers, who are feeling the pinch.

As far as factors affecting confidence, 84% of consumers cited the rising cost of everyday things while 86% cited the UK economy as a worry.

Job security and progression was a concern for 39% of respondents, up from 36% at the start of 2025, with 60% of 18 to 24-year-olds expressing unease about their prospects which bodes poorly for businesses which rely on spending by millennials.

In terms of spending intentions, consumers now expect to pay more for groceries than they have previously, although that is a function of inflation rather than people buying more items, while fewer of us are looking to spend on items like holidays, appliances or furniture and even fewer expect to make large purchases.

Sam Waller, leader of industry for consumer markets at PwC, said: ‘Businesses in the consumer industry will need to be agile and pivot their offerings to target to their more confident customers given the current economic backdrop and how hesitant some consumers are about discretionary spending.’

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