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Lloyds Banking Group Plc Management Discusses Q2 2011 Results - Earnings Call Transcript

It is clear that the external macroeconomic and regulatory environment remains uncertain. Our marketplace and the expectations of our customers are changing. As I have said previously, we need to regain our customers' trusts and provide the products and services they need in an increasingly competitive market. This is core to achieving our aim of being the best bank for customers. At the same time, the financial pressure on consumers has remained high, with rising inflation more than offsetting incomes -- increases in income such that real incomes fall at the fastest rate for 34 years in the first quarter of 2011. Consumers are continuing to grow the value of their spending in line with their incomes, but that is translating into what where spending in real terms, a key reason why the economy has remained weak.

Pressure on household finances has also resulted in a renewed slowing in growth in deposit market balances. Demand for credits also remains subdued in both unsecured and mortgage markets. Customers appear to be managing the squeeze on real incomes without increasing borrowing, but through reducing their savings levels. The regulatory environment remains challenging but we are starting to see greater clarity in a number of areas. There are, however, a number of different issues that are likely to have a fundamental impact on the business going forward, including future capital and liquidity requirements, the impact of any potential refinancing [ph] and the impact over the ICB recommendations in September.

We continue to have a cautious outlook for the U.K. economy. Much has been written about the potential outcome of the austerity measures on the U.K. economy and their impact on key economic indicators in the short and medium term. What we can infer is that the most likely scenario continues to be one of the slow recovery and we will continue to remain cautious. There has been a softening of economy later [ph] in the last 5 weeks, but our economic expectations have not changed since I present the strategic review, and the outlook for GDP expectations remains broadly in line with consensus. We expect U.K. base rates will increase at the end of the second half of 2011, with unemployment slowly improving from the second half of this year and property values stabilizing.

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