LONDON (Reuters) - Lloyds Banking Group LLOY.L played down mounting concerns about Britain's Brexit crisis as it missed first-half profit forecasts due to a much larger than expected charge for mis-selling insurance.

FILE PHOTO: A woman uses a cash machine at a Lloyds Bank branch in central London, Britain February 25, 2016. REUTERS/Paul Hackett

Chief Executive Antonio Horta-Osorio said Lloyds had seen business confidence deteriorate, but little impact on consumers as odds of a chaotic exit from the European Union shorten and economic surveys paint an increasingly gloomy picture.

“The economy has remained resilient, that is evidenced by the very low levels of corporate debt, low levels of private debt, low unemployment and the highest employment numbers ever. So on the consumer side we don’t see any signs of distress,” Horta-Osorio said on Wednesday.

Lloyds has been the only one of Britain’s four biggest lenders not to have taken a provision against a potential Brexit-related increase in bad loans, and its comments contrast with some deteriorating economic indicators.

A survey from the Confederation of British Industry on Wednesday said optimism among smaller British manufacturers tumbled to a three-year low in July, while separate data from Britain’s car sector showed investment fell by more than 70% in the first half of the year.

Lloyds, which has a 15 billion pound motor finance business, did say weakness in used car prices led to a 27% jump in impairments to 579 million pounds over the six months to the end of June.

The bank said exceptional charges, including the fresh 550 million pound provision for mis-selling payment protection insurance (PPI), would also knock its ability to build capital for 2019.

The PPI provision dragged Lloyds’ pretax profits for the first half of the year down to 2.9 billion pounds, below analysts’ average forecast of 3.45 billion pounds, according to company-provided data.

The lender warned there could be more PPI charges to come.

“I’d love to be able to tell you that I can guarantee they’ll be no more impact, but I’ve done this for too long and done too many quarters of this. There is always uncertainty with regard to volumes,” the bank’s outgoing Chief Financial Officer George Culmer said.

Lloyds shares fell 4%, the worst performance on the STOXX European banks index .SX7P.

PREPARING FOR BREXIT

Britain’s lenders are bracing for a potential disorderly Brexit, with businesses voicing concerns at new Prime Minister Boris Johnson’s combative approach and the raised prospects of the country leaving the European Union without a deal, which has slashed the value of the pound.

Culmer said the bank had made a major communications effort to warn business customers of the potential risks of a ‘no deal’ Brexit, but said the lender was resilient enough to cope with any fallout.

Intense competition in Britain’s home lending market pulled down Lloyds’ net interest margin - a closely-watched measure of underlying profitability - to 2.9% from 2.91% the previous quarter and 2.93% a year ago.

Despite the deterioration, both the impairments and net interest margin figures were in line with analyst expectations.

The bank’s core capital ratio - a measure of financial strength - was 14.6%, down from 14.2% the previous quarter, but above analysts’ consensus estimate of 14.2%.

The bank said it would increase its interim dividend by 5% to 1.12 pence per share.