THE interim reporting season for the UK's banks gets under way this week.

Economic uncertainty in Europe and the US has so far had little impact on the performance of the UK banks, reflecting their general insularity.

The UK economy is of course no longer immune to slowing world economic conditions and most banks have been making cautionary soundings, preparing markets and investors should matters take a turn for the worse.

Pre-tax profit growth for the sector is forecast at 14 per cent for this year and 12 per cent next. With the Lloyds/Abbey National bid sidelined and mega-mergers off the agenda, a lot of refocusing and strategy assessing is now under way.

Of local interest will be Northern Rock's figures tomorrow. The company is arguably the most efficient in its key mortgage market. Last month's trading statement revealed no hint of worsening credit quality or margin pressure and results for the first half of the year are expected to be in line with expectations at about £137m.

Over the past 12 months the share price has doubled, reflecting a mixture of defensive qualities and take-over potential. With large-scale mergers now apparently restricted, eyes are focused on the smaller players as being tasty morsels.

In a similar vein, Alliance & Leicester has risen 80 per cent over the past year and is mooted as a potential target for the spurned Abbey National.

Interim results on Friday are expected to show a fall in pre tax profits, to about £207m, reflecting aggressive pricing in the mortgage market in an attempt to grow market share.

Both companies operate in an increasingly competitive mortgage market and, apart from the potential for bids, the share prices may mark time after their recent strong runs.

John Pearson - associate director

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