LONDON, July 25 (Reuters) - Lloyds Banking Group improved its performance outlook for 2023 after reporting a 23% increase in first-half profit, despite pressure on banks to offer greater benefits of rate rises to savers facing a cost-of-living squeeze.

Britain's biggest mortgage lender reported pre-tax profit of 3.9 billion pounds ($5 billion) for the six months to June, up on 3.1 billion pounds the prior year and slightly below the 4 billion average of analyst forecasts compiled by the bank.

Lloyds reported an improved interim ordinary dividend of 0.92 pence per share, up 15% on the prior year and equivalent to returning 594 million pounds to shareholders.

The increased profit meant Lloyds could lift its performance outlook for the year. It now expects return on equity to be greater than 14% this year rather than 13% previously guided.

Lenders have faced mounting pressure from politicians, regulators and consumer groups to pass on more interest to depositors following a long run of Bank of England rate rises, particularly as the cost of mortgages has risen at a much faster pace.

Higher central bank rates have helped banks report bigger profits in recent quarters, as they make money on the widening gap between what they charge on lending and pay out on savings - leading some lawmakers to accuse banks of "profiteering".

Lloyds CEO Charlie Nunn said that he recognised cost of living pressures were "proving challenging" for customers, but said the bank was proactively supporting customers and was offering higher savings rates.

The bank's net interest margin - a key measure of profitability - came in at 3.14% in the April-June quarter, slightly down on 3.22% in the first three months of the year.

The bank said it expected this to fall more slowly than previously forecast, dipping to 3.10% this year instead of 3.05%. ($1 = 0.7754 pounds) (Reporting by Iain Withers and Lawrence White, editing by Sinead Cruise)