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High street lender Santander has notched up a 13% hike in annual UK profits despite seeing a sharp slowdown in customer growth at its flagship current account.

The banking giant posted underlying pre-tax profits of £2.03 billion for 2016, up from £1.79 billion the previous year.

But Spanish owner Banco Santander saw the Brexit-hit pound knock profits from its UK operation, leaving its British earnings 14.7% lower last year.

Santander UK revealed a marked slowdown in the number of new customers signing up to its popular 123 current account after it halved the top interest rate in November.

It added another 483,000 123 customers in 2016, down from around one million in 2015.

Santander said its UK arm also put by another £114 million in the fourth quarter of 2016 for the payment protection insurance (PPI) mis-selling scandal.

Nathan Bostock, chief executive of Santander UK, hailed a “strong performance” in 2016 as profits and lending grew, but cautioned over an uncertain 2017.

He said: “Looking ahead, we expect to see a changeable and more challenging macro environment in 2017.

“We believe the transformation we have made in putting the customer at the heart of our business, coupled with a continued focus on costs and risk management, gives us solid foundations to succeed and confidence in the future.”

Santander said it lent £1.5 billion on a net basis – gross lending less redemptions – in 2016, while it also saw £900 million of net business lending.

But its interest margin was hit as the Bank of England slashed base rates to a new all time low of 0.25% last August, making it harder to make returns on mortgages and savings.

On a bottom line basis, Santander reported UK statutory profits of £1.91 billion, up 43% on 2015.

The bank gave a warning over the impact of Brexit on inflation and the economy, with the prospect of more borrowers falling behind with repayments and slowing demand from a cautious business sector.

It said: “In the near-term, the effects of this and continued economic uncertainty could result in slower UK economic growth in 2017 than experienced in the past three years.”

The group added: “We expect our corporate lending to be slower than in recent years, consistent with forecasted slowdown in the UK economic growth.”

The group is cutting costs by £100 million this year, but Mr Bostock assured the group was not planning major cuts among its 841 branches.

It will instead focus on “operational efficiency”, he said.

The full year results come after Santander reportedly ditched talks for the second time to buy the 300 Williams & Glyn branches being offloaded by Royal Bank of Scotland.

Mr Bostock remained tight-lipped on the decision, but said the group was focusing on “organic growth”.

Full year results from owner Banco Santander showed a 4% rise in global attributable profits to 6.2 billion euro (£5.3 billion) despite the pound weighing on its UK earnings.

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