The profit boost was attributed to recent interest rate hikes by the Bank of England, which have risen from 0.25% in December 2021 to 4.25%. These higher rates have allowed banks to lend money at more profitable rates, leading to profit jumps for all of the UK’s “big four” banks.

However, Lloyds also revealed early signs of stress among some borrowers, with modest rises in arrears primarily in commercial banking loans and mortgages. The bank made a provision of £243 million in Q1 to cover potential losses, up from the £177m set aside during the same period a year ago.

While bank earnings across the sector have exceeded expectations, Lloyds, like its rivals, has maintained flat full-year performance forecasts instead of upgrading them further. This decision signals caution about the outlook for profit-boosting rates, rising defaults, tightening lending margins, and increased competition among savers.

The banking group reported deposit outflows of £2.2bn over the quarter as customers dipped into savings and sought alternative products with better interest rates. The bank’s net income, generated after deposit payouts, rose by 15% to £4.7bn.

Charlie Nunn, Lloyds Group chief executive, said: “The group has delivered a solid financial performance in the first quarter of 2023, with strong net income and capital generation, alongside resilient observed asset quality.

“The macroeconomic outlook remains uncertain. We know that this is challenging for many people. Our purpose driven strategy, alongside our financial strength, means we can continue to support our customers across the country, helping Britain prosper.

“We are also making good progress on our ambitious plans to transform the Group. Our experience over the last year reinforces our belief that continued strategic delivery will create a more sustainable business and deliver increased returns for our shareholders in the medium to longer-term.”