British lender Virgin Money reported a 43% increase in full-year profit on Monday, as Bank of England rate rises lifted its finances ahead of a likely prolonged economic downturn.

Virgin Money reported pre-tax profit of 595 million pounds ($703 million) for the year to September, up from 417 million pounds the prior year.

The bank - which resumed investor payouts over the past year - said it would pay out a final dividend of 7.5 pence per share and buy back an additional 50 million pounds worth of shares.

The country's sixth-largest lender was created through the merger of Virgin Money and rival CYBG in 2018, in a bid to challenge the market dominance of large incumbent high street banks including Lloyds and Barclays.

Investors are wary that an economic crunch in Britain could lead to higher loan defaults and dent bank finances, with official budget forecasters predicting households face

a record hit to living standards

over the next two years.

However, lenders have also benefitted from higher rates designed to curb rampant inflation, as they profit on the gap between what they charge on lending and pay out on deposits.

Virgin Money set aside 52 million pounds to cover potential bad loans to reflect the deteriorating outlook, but said there were limited signs of credit concerns so far.

"While we have solid credit quality across our lending, we are aware that some customers will have to make difficult decisions in this environment, and we are proactively offering them help and support," Virgin Money CEO David Duffy said. ($1 = 0.8467 pounds) (Reporting by Iain Withers, Editing by Emma-Victoria Farr)