Royal Bank of Scotland owner NatWest Group has raised its full-year profit guidance after turning in a performance for the third quarter which exceeded market expectations.

The Edinburgh-based institution reported an operating profit of £1.67 billion for the three months ended September 30, up from £1.3bn for the same period last year, as growing confidence in the economy underpinned “broad-based growth” in mortgage lending- boosted by its acquisition of a mortgage book from Metro Bank - and a rise in business lending. The bank also reported customer deposits and investments had increased.

Chief executive Paul Thwaite declared the UK economy has “undoubtedly performed better than many expected” at the start of year, with inflation now below target, interest rates beginning to fall, and unemployment low, sparking customer activity.

However, he said that confidence was not felt by everyone, noting that while spending on debit cards was up, there is evidence of some consumers holding back from bigger purchases. And he cautioned that some businesses were waiting for “greater clarity” on issues such as the Budget, interest rates and the forthcoming US election before making decisions.

Shares in NatWest climbed by as much as 5% in early trading, before easing back to close marginally up, by 2.1p or 0.58% to 363.9p.

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Mr Thwaite declined the comment specifically on the Budget when quizzed by reporters, amid speculation Chancellor Rachel Reeves is planning to increase bank taxes and raise employer national insurance contributions next week. He said the bank was broadly supportive of measures to boost growth and infrastructure investment across all the nations and regions of the UK.

Mr Thwaite said: “On the Budget, there has been lots of speculation over the last weeks, arguably months. I’m sure there will be a lot more speculation over the course of the next four or five days. I’m not going to add to that speculation, I don’t think it is particularly useful or insightful.

“From my perspective, what I’d like to see is a Budget that supports the unlocking of growth and investment across all the nations, all the regions of the UK. That is obviously what the business community would like to see. Business is looking for a policy environment and a regulatory environment that supports that investment, to support long-term planning and certainty. That is what I am hoping to see.”

He added: “It probably doesn’t help for me to opine on the individual measures. What I would say is some of the topics that are being spoken about, whether that is housing, infrastructure, [or] green transition, they are areas which, given our foothold in those markets, NatWest feels very able to help the wider drive to UK growth.”

Asked if the bank was concerned by reported plans by the Chancellor to change fiscal rules to allow the Government to invest more in infrastructure could lead to a rise in mortgage rates, Mr Thwaite said again that we would not comment directly on the speculation.

He said: “More broadly, what I’d say about fiscal rules is that government will set the framework within which it makes its tax and spending decisions. We have had many different frameworks in recent years so to us it is not a surprise it is being looked at. In terms of the market reaction, the market will take into account really what is trying to be achieved by any change: what does it mean for spending, what does it mean for investment, what does it mean for tax, rather than the specific rules per se. So we need to see what the changes are before we can make a judgement.

“But obviously, the intention and the objective must be to get the balance right, so that there is confidence in the public finances, but also the ability to invest.”

NatWest, which reported that impairments remained low in the third quarter, raised its income guidance for the full year to around £14.4 billion, up from £14bn, and its ROTE (return on tangible equity) guidance to more than 15%, following its strong performance over the first nine months. 

It booked an increased impairment charge of £245m, versus £229m in the third quarter of last year, but said levels of default remain stable and at low levels across the portfolio.

Mr Thwaite declined to comment when asked if the rise in impairment related to its exposure Thames Water. “But what I would say about impairments is that I think it is very important to put it in context," he said. "Our cost of risk is 10 basis points for the year to date, which is historically low, and we have reconfirmed our guidance today of less than 15 basis points, well ahead of what you would expect to be normal run rates.”

The UK Government’s stake in the lender – a legacy of its £45.5 billion bailout during the financial crisis of 2009 and 2009 – is now below 16%. It stood at around 38% in December and has been gradually reduced under an ongoing trading plan.

Mr Thwaite said he was “very pleased with the pace and momentum that we are seeing with the sell-down”. He added: “The trading plan is working really well. It can only work well if there is very good demand for shares on the other side – that is testament to the performance of the bank.”

John Moore, senior investment manager at wealth manager RBC Brewin Dolphin, said: “NatWest Group is in a positive position, particularly compared to this time last year, and while it may still be finding its feet with the acquisitions of Sainsbury’s Bank and Metro Bank’s mortgages the future looks brighter than it has for some time.

“Unlike Lloyds, which reported earlier in the week and hinted at challenges with Scottish Widows and its Black Horse car finance arm, NatWest has much less baggage to contend with. 2025 could be a pivotal year as post the Government stake sale, the business would be free to participate in bolder business writing or acquisitions.”