2025 has (so far) been a strong year for UK blue-chip bank shares. Lloyds (LSE:LLOY) shares have, in fact, been one of the FTSE 100‘s best performers over the period, rising 52% in value.
High street peers Barclays (LSE:BARC) and HSBC (LSE:HSBA) have also taken off since 1 January, albeit at a slower pace. They’ve printed gains of 40% and 23% respectively.
Can these FTSE 100 rockets keep up their momentum though? Let’s take a look at City forecasts.
Lloyds
Lloyds’ share price surge is thanks chiefly to two factors. Hopes of sustained interest rate cuts that’ll boost the UK economy is one. The other is a (largely) favourable outcome to a court case last month, in which it was claimed the bank mis-sold car finance to consumers.
CIty analysts are broadly in agreement that the bank’s shares can keep climbing. The average Lloyds share price forecast for the next 12 months is 91.3p, up 9% from today.
This could happen if Bank of England (BoE) action bolsters income and limits impairments, as investors hope. My view however, is that the bank could struggle to make further progress as economic headwinds intensify. Unemployment’s rising, and tipped by some to hit 5% by the end of the year. Business confidence is weak and consumer confidence is in the doldrums.
WIth competition from challenger banks growing too, I’m not confident in Lloyds’ share price prospects.
Barclays
Barclays, which also generates the lion’s share of earnings from the UK, faces the same challenges. Large exposure to the US and a sizeable investment bank may support the bottom line. But on the whole, I think the Footsie bank may also struggle to meet City expectations.
Broker consensus is that Barclays’ share price will rise 9% over the next year, to 400p.
Not only is it vulnerable to the weak British economy, like Lloyds, net interest margins (NIMs) are set to come under pressure if (as expected) the BoE continues to trim rates. With competition from nimbler digital operators already putting margins under strain, I’m less than encouraged in its profits outlook.
HSBC
So what about HSBC then? It faces some of the same pressures, like declining rates, rising competition from challenger banks, and tough conditions in key markets. In this case, economic problems in China is a concern of mine.
That said, my view of the FTSE 100’s largest bank is far more favourable. I’m so confident in HSBC’s investment case in fact, that I opened a position in the company back in June.
In my view, the bank’s pivot towards Asia provides it with terrific long-term growth opportunities. Banking product penetration in the region remains low, providing scope for significant expansion in the coming decades. This will be fuelled by booming population levels and rising affluence across the continent.
I’m also encouraged by HSBC’s focus on particularly lucrative areas like wealth management. Its wealth businesses grew 22% in the first half at constant currencies.
Over the next 12 months, City analysts think HSBC’s share price will decline 1% to 947p. As a long-term investor, I’m happy to endure a little near-term turbulence given the possibility of eventual stunning returns and I think it’s worth investors considering.
