Like many bank stocks, Barclays (LSE:BARC) shares delivered phenomenal returns for shareholders in 2025. Including dividends, investors have earned close to 82%. That means anyone who put £1,000 to work in January 2025 now has £1,820, vastly outperforming the roughly £1,250 index investors earned.
The question now is, can Barclays shares beat the market again in 2026?
Will the rally continue?
With interest rates on the rise, almost all of the banking sector has seen its profit rise, with Barclays standing out among its peers with some of the highest net interest margins.
Thanks to an impressive portfolio of structural hedges that locked in higher interest rates for longer, the profit margin on Barclays’ lending activities sits at 4.55%. By comparison, Lloyds has only mustered 3.04% while NatWest sits at 2.31% over the same period.
As a result, even with interest rates steadily being cut by central banks, Barclays is on track to continue earning robust profits throughout 2026 and into 2027.
However, the shift in monetary policy also means that debt is simultaneously becoming cheaper for individuals and businesses alike. That’s terrific news for its investment banking arm, which is well-positioned to benefit from a rebound in merger & acquisition activity, along with any potential IPOs next year.
Pairing all this with the group’s substantial cash-generating capabilities and yet another £500m share buyback scheme, it’s not difficult to see why analysts are optimistic about what’s on the horizon.
Currently, three experts say the bank stock is a Buy, while 12 say it’s an Outperform over the next 12 months, and only three say Hold with no active Sell recommendations. And RBC Capital stands as one of the most bullish, recently raising the share price target for Barclays from 500p to 525p.
Time to consider Barclays?
A 525p price projection compared to where Barclays shares trade today (around 474p as I write) isn’t all that exciting. While that’s still a respectable potential return around 12%, it pales in comparison to the performance we’ve seen throughout 2025. And it suggests that the rally could soon come to an end without any new growth catalysts or pleasant surprises.
It’s also important to recognise that even an institutional giant like Barclays isn’t risk-free.
The group’s exposure to the US credit market makes it sensitive to America’s economic environment. Since June 2025, unemployment has been on the rise, climbing from 4.1% to 4.6% as of November last year.
Given that higher unemployment is very correlated with credit card delinquencies, that could prove to be a nasty headwind for this business. There is a similar threat here in the UK, with unemployment climbing from 4% in August 2024 to 5.1% in October 2025. And if this leads to a wider recession, the pressure on Barclays’ profits is only amplified.
Nevertheless, for investors seeking to diversify into the banking sector, Barclays appears to be among the strongest of its peers. So, while I’m personally not rushing to buy its shares myself, this business could nonetheless still be worth a deeper dive for long-term investors.
