Barclays bank has warned of uncertain times ahead after revealing a sharp hit from bad debt provisions.

Profits at the High Street bank fell 6% last year as it guarded against loans that could not be repaid because of the economic downturn.

But analysts said Barclays was better placed than a number of its peers to weather the gloom.

"There are only two certainties in 2003," said chairman Peter Middleton.

The mood music surrounding Barclays is pretty positive. Michael Gifford, Canada Life

"The first is that we shall have to cope again with the uncertain climate we faced in 2002. The second that Barclays is well placed thanks to the spread of its business."

No housing cool?

UK banks have benefited from the record low interest rates that have fuelled the house buying boom.

But large groups such as Barclays have also been hit by woes in the investment and insurance market as well as the economic crisis in Argentina.

Barclays also said its investment bank unit Barclays Capital had suffered as the telecoms and energy sectors slumped.

House price inflation appears to have passed its peak Mervyn King, Bank of England deputy governor

Click here to read about the Bank of England's forecasts

Chief executive Matthew Barrett said the retail side of the business was holding up well and that he did not expect the housing market to crash.

"If you look at the house price to earnings ratio it's very high, but debt servicing costs are very manageable."

His optimism came despite the Bank of England warning yesterday that house price growth could fall from 20% to zero in the next two years.

Unhappy days

Investors remained upbeat, however, with Barclay shares up 6% at 362p.

Michael Gifford, a Canada Life fund manager, said: "The mood music surrounding Barclays is pretty positive."

Barclays also cheered investors with a 10% rise in dividend payments to 18.35p per share.

The group's profits for the year to December 2002 were down 6% at �3.2bn and its bad debts rose 29%.

"It's too early to say that happy days are here again," said Mr Bartlett.