I don’t think many people were expecting Lloyds‘ (LSE:LLOY) share price to deliver the stunning gains we’ve seen so far in 2025.
Up 75%, the FTSE 100 bank has left its blue-chip rivals like Barclays (+63%), HSBC (+37%) and NatWest (59%) trailing in its dust.
At 96.4p, it seems a matter of time before Lloyds shares blast through the £1 marker. But let’s forget about that fairly modest target for a moment. Given its stunning gains this year, could we see the bank double in value in 2026?
Good news!
There are a lot of good reasons to believe the bank’s shares could soar again next year. One is sustained strength in the housing market, a key profits driver for the business.
Just today (3 December), UK Finance data showed the home loans market return to growth in Q3. This follows Nationwide data showing a better-than-expected 0.3% rise in average house prices in November.
Lloyds should also benefit from a rise in financial planning activity in the UK. As one of the most trusted banking brands, it’s in a prime position to capture that demand.
Finally, the bank’s steady restructuring drive should also drive further benefits in 2026. As well as bringing down costs, increasing digitalisation will also boost Lloyds’ position in the critical online banking arena.
What could go wrong?
But it’s time I put my cards on the table. I have reservations about how far the FTSE bank can go as the UK economy basically flatlines.
Retail banks are highly sensitive to broader economic conditions. Demand for discretionary financial products like loans, credit cards and insurance can topple when consumers feel the pinch. Banks can also endure a steady flow of impairment charges as people struggle to make ends meet.
So naturally I’m fearful for Lloyds, its profits outlook and the chances of its share price surging. Both the Office for Budget Responsibility and OECD have cut their UK growth forecasts for 2026 in recent days, underlining the tough environment.
The bad news is that Britain’s stagnant economy means sustained interest rate cuts can be expected over the short-to-medium term. This provides further trouble for banks by trimming their net interest margins (NIMs).
Lloyds’ was a respectable 3.06% as of September. But I wouldn’t be comfortable seeing the margin falling further given the other pressures the bank faces.
Is Lloyds a Buy to consider?
But does this make Lloyds a Buy to think about right now? I’m not sure. This year’s share price surge leaves it trading on a forward price-to-book (P/B) ratio of 1.3.
This is above the 10-year average of 0.8. And it suggests to me the good news is currently factored into the price, which could limit fresh gains in 2026. Any reading above 1 suggests a stock is trading at a premium to its asset values.
But then I was wrong about Lloyds’ share price prospects this year, and I could be again. I won’t buy the FTSE bank myself, but it could be worth considering.
