UK Banking comprises UK Retail Banking and UK Business Banking. UK Banking profit before tax rose 9% to £2,298m (2003: £2,103m).

	Performance Highlights	2004 £m			2003 £m
	Operating income	3,415			3,439
	Goodwill amortisation	(158	)		(158	)
	Other operating expenses	(2,270	)		(2,188	)
	Operating expenses	(2,428	)		(2,346	)
	Provisions for bad and doubtful debts	(60	)		(107	)
	Operating profit	927			986
	Profit from associated undertakings	-			7
	Exceptional items	42			(10)
	Profit on ordinary activities before tax	969			983

UK Retail Banking profit before tax decreased 1% (£14m) to £969m (2003: £983m).

Operating income was broadly flat at £3,415m (2003: £3,439m). There were strong performances in current accounts and UK Premier. The performance in the mortgage business was impacted by margin pressure.

Net interest income increased 3% (£59m) to £2,059m (2003: £2,000m) driven by higher customer deposit balances particularly in Personal Customer current accounts and UK Premier deposits, together with an increase in the retail savings margin. This growth was partially offset by a reduced contribution from the mortgage business.

Net fees and commissions increased 4% (£43m) to £1,117m (2003: £1,074m), driven by strong growth in value added feebased current account income.

Other operating income decreased 35% (£126m) to £239m (2003: £365m). The majority of the decrease was attributable to a reduction of £89m in income from the revision of estimated amounts expected to be repaid on banking liabilities.

Operating expenses rose 3% (£82m) to £2,428m (2003: £2,346m). Almost half of the cost increase (£40m) was attributable to preparations for a new regulatory environment, particularly in the mortgage and general insurance businesses. There was significant investment in the business infrastructure and restructuring costs were incurred in reorganising the business. This included adding 1,000 customer facing staff, an upgrade in branch management capability and investment in new technology.

Provisions decreased 44% (£47m) to £60m (2003: £107m). The quality of the loan portfolio improved and mortgage balances in arrears remained at a low level. The reduction in the provisions charge included a release of £40m associated with the UK mortgage business following a review of the portfolio and the current loss experience.

The exceptional item of £42m was predominantly in respect of the profit on the sale of a shareholding in Edotech, a former Barclays in-house statement printing operation.