Spanish lender Santander warned of a "challenging" year ahead as its UK profit slumped in the aftermath of the Brexit vote.

The group said its annual British earnings dived by 14.7%, as a result of the weak pound against the euro following the country's referendum result to leave the European Union.

Since the Brexit vote in June sterling has plunged some 15% against the dollar and around 10% against the euro.

The group added UK earnings were also hit by the introduction of an 8% bank corporation tax surcharge.

UK chief executive Nathan Bostock said: "Looking ahead, we expect to see a changeable and more challenging macro environment in 2017."

Inflation in the UK has jumped to 1.6% in recent months as a weaker pound makes imports more expensive. Economists expect inflation to hit 3% by the end of the year, squeezing household budgets.

However, full-year profit at parent company, Banco Santander, lifted 4% to €6.2bn (£5.3bn, $6.7bn) boosted by a half million new customers and higher fees in Brazil.

Executive chairman Ana Botin said: "Going forward, we have many opportunities for profitable growth in Europe and the Americas, in an environment we anticipate will be volatile but generally better than 2016."

In the UK – which accounts for a fifth of the group's profits – the bank saw a sharp 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 483,000 new 123 customers last year, down from about a million in 2015.

The bank also put aside another £114m in the fourth quarter for compensation linked to the payment protection insurance (PPI) mis-selling scandal.