Lloyds TSB, on Wednesday, started the UK banking interim results season with a 70 percent fall in reported pre-tax profits to £599m, as asset write-offs and volatility in its insurance business hit the figures.

The bank did however say that its underlying profits were up 11 percent to £2.158bn and I increased the interim dividend by 2 percent to 11.4p.

Eric Daniels, the banks chief executive, said the dividend increase was “a very positive signal” at a time when other banks were asking shareholders for additional capital or to pay dividends in shares as opposed to cash.

De to the banks heavy exposure to a slowing UK economy, analysts had expected the bank to cut its dividend.

Mr Daniels said Lloyds TSB expected UK economic growth of 1.6 percent in 2008, slowing to 1.3 percent in 2009. However, he said that “recent events” suggested the risk of lower growth or recession had increased. He also went on to predict a fall in UK house prices of 10 to 15 percent in 2008 and a further 5 percent next year.

Although the bank’s core Tier 1 ration was down from 7.4 percent at the end of 2007, to 6.2 percent at the end of the half year, Mr Daniel’s said the capital position was “very robust”.

“We stayed away from the racier stuff,” he said, remarking to Lloyd’s prudence in earlier times.

In Lloyds mortgage book the bank had limited exposure to buy-to-let mortgages and now impairments in mortgage lending were well below the average. The bank has “gained market share in new mortgage lending, and at better margins,” he said.

In the half-year the group took a £585m hit to profits, and a £630m charge to reserves, on mark to mark adjustments. “Exposure to asset backed securities and other impaired investments was also low,” Mr Daniels said.

In early London trading, Lloyds’ shares added 2p to 323p.