Lloyds (LSE:LLOY) has been one of the FTSE 100‘s greatest risers this year, its share price rocketing 76% since 1 January. Yet with the UK economy tipped to weaken in 2026, could retail banks like this start to struggle?
One particularly bullish analyst is having none of it. For Lloyds, they’re expecting the share price to jump another 15% by next Christmas, shooting through £1 to hit 110p per share.
That’s a much smaller increase than the bank’s delivered in 2025. However, it’s still a pretty spectacular projection — combined with expected dividends, it suggests Lloyds shares will deliver a total return close to 20% during the next 12 months.
However, this is just one of 17 price forecasts on the Black Horse bank. And they can’t all be correct! So what can we realistically expect from the FTSE firm in 2026?
Looking good!
Recent price gains owe a lot to the resilience of the housing market. Though the broader economy continues to struggle, the company’s mortgage operations have remained rock-solid — this is critical, given Lloyds’ role as the UK’s largest lender.
Things look encouraging on this front heading into the New Year, too. Nationwide has predicted house price growth of up to 4% during the next 12 months. With interest rates tipped to fall further, and increased competitiveness in the mortgage market, I’m not shocked by this bright projection.
Further Bank of England rate cuts could give Lloyds’ profits (along with its shares) another boost, too. The knock-on effect on personal and business lending might be considerable.
Lower rates could also help the bank avert crushing credit impairments, boosting investor sentiment even more. Lloyds is already impressive on this front — impairments of £176m in Q3 were largely flat year on year, helping the bank beat profits estimates for the quarter.
What could go wrong?
But let me be straight. Even despite all this, I’m a lot less confident about Lloyds over the next year.
This year’s rapid ascent leaves it on a forward price-to-book (P/B) ratio of 1.3 times. That’s above the 10-year average of 0.8, and shows the bank trading at a premium to net asset values.
Given the risks Lloyds faces, this could cap price gains or even prompt a sharp drop if news flow worsens. And in my view, both scenarios are more than possible in the New Year.
One danger is that the UK economy remains in dire straits, impacting revenues and driving bad loans up. Recent developments on this front have hardly been reassuring — in November, the Office for Budget Responsibility (OBR) predicted growth of 1.4% next year, and slashed forecasts all the way through to 2029.
Big questions also hang over Lloyds’ net interest margins (NIMs), as interest rates fall and market competition increases. Finally, there may be more scares as the bank works out the final bill for the mis-sold car finance.
The final word
I didn’t predict Lloyds’ stunning share price rise this year, and I could be wrong again. I won’t add the FTSE 100 bank to my portfolio, especially given its sky-high valuation. But I think it might be worth considering by less risk-averse investors.
