I’ve been waiting for Lloyds Banking Group (LSE: LLOY) to start moving upwards for some time. For years, in fact. Every time the bank looks like recovering from its latest setback, something else puts the boot in. And the Lloyds share price heads in the wrong direction. So am I naive to think about September perhaps being any different?
I’m really not too worried about what might happen in any specific month. I am, after all, in it for the dividend. And that’s not going to change in the next few weeks. But as we head further out of the pandemic crisis, there’s a possible economic change that might act as a pivot for banking shares.
I’m talking about inflation. Times of low inflation call for low interest rates, to make borrowing cheaper and try to give economic activity a boost. But low interest rates make it harder for banks like Lloyds to make money by lending. And that’s adding to the Lloyds share price woes.
But that has to end, and inflationary pressures are already coming to bear. The National Institute of Economic and Social Research (NIESR) has this month revised its economic growth forecast. It now expects the UK economy to grow 6.8% in 2021. That, in turn, will push up inflation. NIESR sees the figure reaching 3.9% in early 2022. That’s around twice the Bank of England’s target, so might it lift interest rates a tiny bit to try to head it off?
I can’t actually see the BoE taking preemptive action. But if interest rate rises start to look more likely, that could shift sentiment towards the banking sector. I doubt anything is really going to happen in September, but the month might just bring us some improving economic clarity. And even any reductions in uncertainty could assist the banking business.
There’s another thing that seems to be holding the Lloyds share price back, though. And it’s something I really don’t think is going to change in September. As my Motley Fool colleague Roland Head points out, Lloyds is heavily dependent on the UK mortgage market these days. In fact, it’s the UK’s biggest mortgage lender.
Mortgages are slowing, and fears of a property slowdown have been gathering pace. Against that, though, housebuilders have not been reporting any slowdown in sales or prices so far. And if upbeat results keep coming in from the sector, that fear could be lifted from Lloyds. It’s not likely to happen quickly, mind.
Lloyds share price going nowhere?
Then there’s Lloyds’ new venture into the property rentals market, getting together with Barratt Developments to buy new builds for rental. I think that could be a profitable new venture for the bank. But right now it creates new uncertainty, at a time when that’s the last thing the markets appear to need.
My overall take? I’m not expecting any significant uptick in the Lloyds share price in the short term. But that’s fine, as long as I’m getting my dividends. And it might even extend the opportunity for securing higher income by buying more.
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Alan Oscroft owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.