Nationwide warns of consumer squeeze as profits fall

Nationwide, Britain's biggest building society, has reported an 18% fall in annual profits and warned of a squeeze on consumers and slowing house price growth as the economy stutters.

The mutual blamed the fall in pre-tax profits to £1.05bn on competition and its decision not to pass on the full impact of last year's Bank of England interest rate cuts to savers.

It also said it was further scaling back its business model by withdrawing from car insurance - months after the lender announced it was pulling out of commercial real estate.

The building society's results for the year to 4 April showed gross mortgage lending up 3% to £33.7bn and that a record 795,000 current accounts were opened, up 35%.

Chief (Taiwan OTC: 3345.TWO - news) executive Joe Garner said consumer confidence had held up well since last year's referendum.

But he said the combination of rising inflation and modest wage growth was "likely to squeeze household budgets" though consumers were more likely to cut back on leisure activities first rather than mortgage payments.

He added: "In the housing market, if the economy slows as we expect, there will be a cooling effect in the form of lower sales and house price growth."

First (Other OTC: FSTC - news) signs of the slowdown were already beginning to show, he added, with prices likely to rise by 2% this year - down from 4.5% in 2016 - and "scope for further softening" in 2018 and 2019.

Nationwide said it was pulling out of businesses no longer seen as central to its model, including international deposit taking and inheritance tax planning as well as motor insurance.

Mr Garner said the decision was not linked to broader concerns about risks in the car finance sector in Britain linked to the increasing use of complex leasing arrangements.

Nationwide's warning on the squeeze facing consumers comes after inflation rose to a new three and a half year high of 2.7%, well above the most recent pay data showing earnings increasing by 2.1% .

Earlier this month, Bank of England governor Mark Carney said this year would see a "more challenging time for British households".