Barclays (BCS) reported a forecast-beating 18% rise in third-quarter profit on Thursday, as slower than expected interest rate cuts and upbeat investment banking prospects helped it raise its income outlook for the year.

The banks share price was up 4% on Thursday before the bell.

The buoyant earnings performance shows early promise for Barclays in its challenge, along with European rivals, to sustain earnings even as interest rates fall.

Barclays said it now forecasts three Bank of England rate cuts this year to a final policy rate of 4.5%, having previously forecast five cuts and a final rate of 4%.

The British bank's pretax profit for the July-September period was 2.2 billion pounds ($2.85 billion), up from 1.9 billion a year ago and higher than the average of analysts' forecasts of 2 billion pounds.

Barclays upgraded its forecast for net interest income for the year, saying it now expects to exceed 11 billion pounds rather than just hit that target.

Barclays' shares - which have rocketed 61% so far this year and are trading close to a nine-year high - were 4% higher at 0825 GMT, outperforming a 0.8% rise in the FTSE 100.

"Overall, these numbers are positive on any number of fronts, and the warm share price reaction to the update is well-won given the high expectations which the bank was up against going into the results," Interactive Investor analyst Richard Hunter said.

Barclays' domestic corporate and consumer lending business once again performed well, vindicating a drive to invest in the division, with the 600 million pounds acquisition of Tesco's banking arm in February.

The unit's third-quarter return on tangible equity, a closely watched measure of performance, rose to 23.4% from 21% a year ago.

"Default levels remain low, mortgage activity is picking up, and deposit migration headwinds are easing," Matt Britzman, senior equity analyst at Hargreaves Lansdown said.

Investment bank

Barclays said third-quarter income in its investment bank rose 6% year on year, a strong performance that exceeded expectations as corporate fundraising and dealmaking increased and equities trading was boosted by the bullish stock market.

Germany's Deutsche Bank also produced an 11% year-on-year rise in investment banking revenues, smashing expectations for gains of 6.5% over the third quarter.

At Barclays, third-quarter fixed income, currencies and commodities and equities revenue both rose 3% year on year to 1.18 billion pounds and 692 million pounds respectively.

Advisory fee income surged 133% to 186 million pounds while fees generated in the bank's debt capital markets business rose 48% year on year to 344 million.