The impending recession could leave borrowers struggling to repay their debts, the high street bank Santander UK has said as it put aside more cash to protect itself from potential defaults. The UK arm of the Spanish bank said on Thursday that while the outlook for the British economy remained uncertain, a recession in 2023 was likely. It said that despite government support for energy bills, rising prices would continue to eat away at disposable income, which “could impact lending repayments”. The warning was issued alongside the bank’s full-year results, which showed the lender put aside £321m in 2022 to cover potential defaults, compared with the £233m it released a year earlier as Covid restrictions began to lift. The higher figure was because of the “deterioration in the economic environment”, including higher interest rates, lower economic growth, and a drop in house prices, which Santander predicts will fall by about 10% to levels not seen since 2021. “These challenges for households and businesses are expected to continue into 2023 and could impact credit quality,” the bank said, referring to the ability of borrowers to repay their loans and mortgages. On Wednesday Virgin Money set aside £66m to cover a possible rise in bad debts in the first quarter. However, the challenger bank said repayments had been stable so far. Santander’s provision for potential defaults weighed on the lender’s profits, which rose just 2% to nearly £1.9bn over the year to December. The flat growth was despite a 12% increase in net interest income to £4.5bn, as the interest rate rise allowed it to charge more for mortgages and loans. Profits were also subdued by the £421m it put aside to cover the cost of fraud and scams, as well as a £108m regulatory fine from the Financial Conduct Authority. In December, the UK regulator issued the bank with a penalty over “serious and persistent” gaps in its anti-money laundering controls between 2012 and 2017. Santander UK said it was also affected by a “marked slowdown” in mortgage lending at the end of the year as interest rates increased to 3.5%. “The global economic environment and rising cost of living have presented challenges for many of our customers and clients,” Santander UK’s chief executive, Mike Regnier, said. “Our focus has been to provide targeted and practical support, including advice on household budgeting and a toolkit for SMEs [small and medium sized enterprises] to help them through the ongoing inflationary pressures.” Overall, the Spanish banking group reported an 8% drop in profit to €15bn (£13bn).