Co-op Bank says rate cuts will hold back recovery

The Co-op posted narrowed half-year pre-tax losses of 177m

Outgoing boss Niall Booker said banks are facing "challenging" times following the UK's vote to leave the European Union, with the Bank of England's move to slash interest rates making it harder to drive revenues.

The group posted narrowed half-year pre-tax losses of £177m, down from £204m a year ago, but much of the improvement was down to one-off boosts, including a £58m windfall from the sale of its share in Visa Europe.

Co-op Bank said it will continue to post losses throughout this year and next as cost cutting fails to offset spending on online banking projects and its overhaul.

It added that the impact of the Brexit vote is likely to mean a weaker-than-expected return to profit, although it stuck by aims to see "sustainable" earnings in its core bank by late 2017.

The core bank posted underlying earnings of £17m in the first six months of 2016, against losses of £26m a year earlier.

Mr Booker said: "Today's market conditions are challenging for all retail-focused banks and the macroeconomic uncertainty following the result of the EU referendum, including the likelihood of lower for longer interest rates, may restrict our ability to grow revenue in the short term."

He added: "We have always been clear that turning the bank around would be a significant journey of at least five years and so far the overall story remains one of progress and improvement."