After doubling in value in the last two years, many onlookers are suggesting that Lloyds (LSE: LLOY) shares might have run out of steam. Personally, I wouldn’t be surprised if the shares keep surging, perhaps even breaking the £2 barrier in the not-too-distant future. Here the four main reasons why:
- Continuing high interest rates despite rate cuts.
- More rounds of share buybacks.
- Ongoing digitisation.
- Benefits from artificial intelligence.
Read on for a more in-depth analysis of why I feel these four factors could propel the Lloyds share price upwards. I’ll even throw in a ‘wild card’ fifth reason too!
Price jumps
Let’s start with those interest rates. It’s sometimes said that higher interest rates are a negative for banks. That’s because when loans are more expensive, banks have to deal with more defaults. Lloyds’ impairment charges rose by £300m between 2024 and 2025.
But the other side of the coin is that banks have tiny margins when rates are as low as they were in the 2010s. What kind of margin can you take off 0.25%? Not much. This is underscored by meagre earnings in those years, followed by much higher earnings in the 2020s.
It can also be seen in the share price. The Lloyds share price jumps on news or rumours of a rates hold and falls when it’s looking like a cut instead.
Interest rates have been falling more slowly than expected. This is partly due to sticky inflation. I wouldn’t be surprised to see this trend continuing.
Higher earnings can be used for share buybacks. The money from buybacks is used to buy existing shares and take them off the market. This is sometimes unpopular compared to paying the cash out in dividends. But it does have an effect.
The last round of buybacks helped the share price nearly double (although almost certainly played just a small role). And Lloyds just announced a fresh £1.75bn buyback in January 2026.
Changes
The third reason is that Lloyds and banks in general are well-positioned to benefit from digitisation – or, in other words, using computers and the internet for their services. Continuing an ongoing trend, Lloyds has already closed 40 high-street banks in 2026, which will save costs. While this is frustrating for those affected, the data shows that people are choosing to go online for their banking more and more.
Reason number four is the introduction of artificial intelligence into the business. While it’s still early days for AI, the signs are that banking and finance is set to benefit more than most. This could lead to more efficiency savings by eliminating grunt work and battling fraud.
And what about that bonus fifth reason? Lloyds is especially exposed to the UK housing market, which is in the doldrums at the moment. But given housing demand and other factors, I see housebuilders being an interesting turnaround play in the years to come.
While this is somewhat speculative, if I’m close to the money, then this could give an extra boost to Lloyds towards that £2. I think the stock is worth considering.
