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NatWest has revealed its profits swelled to top £2 billion in the first quarter of 2026 as it expects to be boosted by interest rates staying higher, despite cautioning over a worsening outlook for the UK economy.

The banking group, which also includes Royal Bank of Scotland and Coutts, reported an operating pre-tax profit of £2 billion for the first three months of the year.

This was about 12% higher than the £1.8 billion it made over the same period a year ago.

It grew its lending book, including mortgage balances, and customer deposits increased due to higher balances in corporate accounts.

The bank said it had made more than £100 million of extra cost savings in the first quarter as it continued to restructure the business and use more artificial intelligence (AI).

Furthermore, like other high street lenders, NatWest expects to be bolstered by interest rates staying higher for longer, meaning it can generate more from loans.

As a result, it was now expecting to generate income at the “top end” of its guided range of between £17.2 billion and £17.6 billion for the year.

Nevertheless, the group revealed it had set aside more cash for bad loans after updating its forecasts for the UK economy, recognising that rising energy prices caused by war in the Middle East had weakened the outlook.

Credit impairment charges more than doubled from £136 million last year to £283 million for the latest quarter.

The increase was primarily caused by it expecting a roughly £140 million hit directly related to the worsening economic environment.

However, this was significantly less than the £823 million that Barclays set aside.

NatWest said it was now expecting UK economic growth to slow to 0.4%, while inflation could rise to peak above 3.5%.

Its new base case scenario also sees unemployment increasing to a peak higher than 5.7%, while interest rates will be held at their current level for longer.

Paul Thwaite, NatWest’s chief executive, said higher unemployment could lead to “softer demand, whether that’s in the business lending market or the housing market”.

But he said: “When you look at our credit portfolios at the moment, the performance remains very strong and we’ve seen no deterioration yet.

“The reality is that they are scenarios based on assumptions, and we’ll see through the year exactly how those different economic variables play out.”

Mr Thwaite added: “We have started the year with positive momentum, underpinned by healthy customer activity – growing all of our three businesses, expanding our capabilities to meet more of our customers’ needs and further improving productivity as we use AI at scale across the bank.”