HBOS set to beat profit forecasts

Banking group HBOS is set for a sharp rise in annual profits after forecasting results well ahead of market hopes today.

The company said better-than-expected trading meant it was likely to "comfortably exceed" forecasts in the City for underlying profits of around ?4.56bn - up from the ?3.77bn achieved in 2003.

HBOS - which owns the Halifax and the Royal Bank of Scotland - predicted "moderately slower" economic growth in 2005 but added that it still expected good earnings growth over the period.

Shareholders were also put on standby for an increase in returns as HBOS promised to buy back shares up to a value of ?750m.

The group considered a rival bid for Abbey National earlier this year but stressed the importance of organic growth in today's trading statement.

The update from the UK's biggest mortgage lender highlighted a good showing from its core retail business, with cost increases across the group also substantially less than the target of 5% for the year.

HBOS said: "In retail we expect to deliver a strong performance, with sales volumes for mortgages, credit cards and banking products in line with expectations."

The group appeared more cautious about prospects for the UK economy in 2005 but said it believed interest rates would start to fall later in the year.

It added: "A measured slowdown in the housing market may be associated with more moderate growth in consumer spending. However, we continue to expect increasing levels of business investment.

"The trading and economic outlook for 2005 is therefore consistent with HBOS continuing to produce good earnings growth whilst further strengthening its balance sheet."

HBOS is the latest banking group to deliver a positive trading update for 2004, following others from rivals Lloyds TSB and Barclays.

The company said it also expected profits before tax and including exceptional items to beat consensus market forecasts of ?4.48bn.