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.
Our main scenario continues therefore to point to a slow recovery in line with consensus, with continued deleveraging and high inflation for some time to come. On the other hand, as we discussed 5 weeks ago, there are some additional scenarios of additional macroeconomic risks such as the double-dip confrontation [ph] from a sovereign debt crisis, where the probability of occurrence has recently increased. Against this backdrop, our decision to accelerate our noncore disposals and strengthen our funding position in the first half of 2011 was key. Reducing the risk in the balance sheets and adapting our business model to be more resilient to any future volatility in the markets will continue to benefit the financial strength and competitive position of the group.The business performance in the half year has been resilient, even the economic and regulatory uncertainty and the significant challenges facing the business. These results are in line with our expectations. Tim will provide more detail on the financial performance of the group, with substantially greater disclosure on both core and noncore businesses. We are reporting an underlying profit before tax, which excludes liability management and ECN effects of GBP 1.3 billion in the first half at 36% on the prior year. This is a resilient performance based on falling impairments and slightly lower costs, substantially offsetting the fall in underlying revenues. In our core businesses, the group generating an underlying profit before tax of GBP 2.9 billion in the first half, and Tim will add more detail on this. At the same time, we have continued to reduce the group's risk profile and we have made good progress in improving the loan-to-deposit ratio from 154% to 144%, reflecting the balance sheet reduction and strong deposit gathering programs during the half year, whilst maintaining our robust capital position. We've continued to make strong progress with integration and this is now in its final stages. The benefits of these in our property procurement and IT-related programs will continue to flow through and drive us towards the overall annual synergy targets of GBP 2 billion by the end of this year. From an IT perspective, we have already rolled out the large counter system to Halifax and Bank of Scotland branches and migrated HBOS ATMs to the Lloyds platform. This puts us in a good position for the final migration of Halifax and Bank of Scotland customer accounts and data to the scale [ph] Lloyds platform. This is an immense exercise involving the migration of approximately 30 million customer accounts but this platform foundation -- this platform would be the foundation for the group's transformation plans.
This exercise will complete later this year as we have forecasted. The focus will now start to move to simplification and as the integration initiative is complete, more resources will be freed up to deliver the simplification initiatives I outlined to you in June.We have continued to make significant progress in reducing the group's risk profile and strengthening the balance sheet. We have reduced our noncore assets by GBP 31 billion in the last 6 months and it now stands at GBP 162 billion. We've improved our funding position with GBP 25 billion of term fund raised in the first half and grew our core relationship deposits by 3% in the same period. These actions have facilitate further substantial reductions in liquidity support from government and Central Bank facilities with only GBP 37 billion now outstanding at the end of the half year. We also continue to progress the Verde disposal process. There is not much I can report here, but we have now received the number of indicative offers, which we are reviewing. We will now move on with the process and we continue to expect to have identified the purchase by the end of this year. In line with the original timetable, we do not expect the transaction to complete until 2013, even the complex separation and business migration issues that will need to be resolved. I want to provide some additional information in the next few slides on the very real progress we are making on our commitment to placing the customer at the heart of everything we do. The group continues to prioritize support for the U.K.'s economic recovery at both corporate and retail levels through the range of services we provide to our business and mortgage customers. Within the Merlin agreement with the U.K. government, the group and 4 other major U.K. banks are asking for the intention to enhance support for the U.K. economic recovery by jointly delivering increased gross business lending in 2011 compared to 2010. Based on performance in the first half of this year, the group is on track to deliver its full year contribution to the Merlin lending agreements. As at the end of June 2011, we have provided GBP 21.2 billion of committed gross lending to U.K. businesses, of which GBP 6.7 billion has been to SMEs. The year-on-year growth to SMEs was 2% as at the end of June 2011, which continues to compare favorably with the negative growth of 4% in SME lending across the industry reported in the latest available data from the Bank of England. Read the rest of this transcript for free on seekingalpha.com