Despite fears over the UK economy, rising inflation, and worries over a fresh mis-selling scandal, the Lloyds (LSE:LLOY) share price continues to strengthen.
At 66.7p per share, the FTSE 100 bank is up 21% since the start of 2025. This takes gains over the past year to a whopping 53%.
Yet following its rapid ascent, analysts believe Lloyds may struggle to continue its surge. But how realistic are broker forecasts for Lloyds shares? And should investors consider snapping the soaring bank up today?
Stable outlook
It’s important to say that some analysts’ predictions for the next 12 months differ wildly. One believes the Footsie firm will fall 20% in value over the next 12 months, to 53p per share.
Another believes shares will soar another 26%, to 84p.
However, the broad consensus is that Lloyds’ share price will remain stable over the next year. The average price target among 18 brokers is 65.8p per share. This is 1% lower than current levels.
Running out of road?
On paper, it’s hard to see how Lloyds shares will continue to climb without moving into ‘overbought’ territory.
With a price-to-book (P/B) value of one, investors are paying exactly what the bank’s net assets are worth.
Furthermore, Lloyds’ price-to-earnings (P/E) ratio of 9.8 times is now above its five-year average of 7.7 times. Given its uncertain growth outlook in 2025 and beyond, this valuation looks pretty juicy to me.
In fact, I believe Lloyds’ recent share price surge now puts it at risk of a potential pullback.
Tough conditions
One fear I have relates to the gloomy outlook for the British economy and what this could mean for Lloyds’ earnings. Unlike other FTSE 100 banks like Barclays and HSBC, the company doesn’t benefit from overseas exposure to counter problems at home.
This weighed on revenue growth in 2024, with net income falling 5% to £17.1bn. With the Bank of England (BoE) predicting UK GDP growth of just 0.75% this year, and competition from challenger banks and building societies rising, established banks will likely struggle to grow the top line.
Profits could also suffer if (as expected) interest rates continue falling. Lloyds’ net interest margin dropped 16 basis points last year to a paper-thin 2.95%, reflecting in part recent BoE rate cuts and those aforementioned competitive pressures.
On the plus side, interest rate reductions provide an economic boost that could help the bank’s revenues and limit loan impairments. Improving conditions in the housing market are another positive sign.
But on balance, external factors mean it could be another difficult year for the bank.
Car crash coming?
Yet arguably the economic environment isn’t the biggest danger to Lloyds’ earnings — and by extension, its share price — in 2025.
Investors also need to consider the possibility of eye-watering penalties if the bank is found guilty of mis-selling car finance. It previously set aside £450m to cover the potential fallout of a Financial Conduct Authority (FCA) investigation. This has been hiked by another £700m, Lloyds announced this week.
But the eventual cost could be even higher given the bank’s position as market leader. Ratings agency Moody’s predicts the final cost to the sector could be as high as £30bn.
All things considered, Lloyds shares might not be the best choice for investors today. I think they should consider exploring other UK shares instead.
