Barclays (LSE:BARC) shares have been a tremendous investment for holders in recent years. The price increased by an incredible 76.8% last year.
Over the last five years, they’ve generated an even lovelier gain of 221.7%. Investors would have been very pleased during this period.
However, I’m sure the question on most investors’ minds when it comes to the company’s shares is whether they can perform a similar feat in the coming year.
Interest rates
Barclays has seen such strong performance in the last couple of years, in part because of interest rates increasing from 0.1% in December 2021 to 5.25% in August 2023. This high interest rate was then maintained for another year.
This allowed Barclays to benefit from an expanding net interest margin, as the rates it charged to consumers increased more quickly than the costs of deposits held by the entity paid to them.
Ultimately, this helped to boost the banking giant’s profit.
However, we’re now entering the opposite scenario, as the Bank of England is cutting rates in an attempt to stimulate the UK economy. Just recently, interest rates were cut to 3.75%, with more expected this year.
This has a contracting effect on the net interest margin, as interest paid on deposits falls more slowly than interest charged to consumers on loans.
Diversified global business
What I like about Barclays is that the bank is more diversified than many of its UK peers.
For example, Lloyds is significantly more exposed to UK interest rates, as Barclays also has operations in the US. Therefore, falling interest rates in the UK will have less of an impact on it.
Furthermore, the business also has a significant investment banking and wealth management division. This means that if interest rates continue falling, the company has other operations it can fall back on for growth drivers.
Looking at investment banking on its own, it grew by 12% for the first nine months of 2025 to hit £10.3bn in revenue. It was also almost half of the firm’s total revenue of £22.1bn.
That said, even these services contain some levels of interest income, so these divisions in the bank will still be affected, although not too heavily. In its latest period, net interest income was only £978m of total revenue from investment banking.
Valuation and takeaway
Now, when assessing whether Barclays shares can do it again this year, we need to put its valuation into context.
The company is currently trading with a forward price-to-earnings ratio of 8.1. This is very cheap.
However, I’m not so optimistic about the firm’s performance this year. In fact, I don’t think it will come anywhere close to repeating the magnificent performance of the last few years.
I don’t think the shares will decline because they are pretty cheap.
But falling interest rates isn’t an environment that’s conducive to helping the firm flourish right now. Furthermore, while the UK economy isn’t in a great position at the moment, neither are other major global economies, such as the US, where Barclays also has major operations. Therefore, other services such as wealth management and investment banking may also struggle.
Therefore, I think investors may want to consider looking elsewhere to generate strong returns in 2026.
