Lloyds Banking Group (LSE: LLOY) shares were finally making shareholders smile as they climbed in the New Year. But then the escalation of hostilities in the Middle East brought it all to a juddering halt. From a peak in early February, the price plunged around 20% by the end of March.
But since then, we’ve been seeing the start of what might be a nice recovery. And £10,000 in Lloyds shares this time last year would now be worth around £15,000, including dividends. The dividend yield is only around 3.5% these days, but that alone should be enough for an investment to beat inflation.
What about 12 months from now, and beyond? Analyst forecasts look pretty upbeat, and Lloyds shares might still be cheap.
Economic threat
Before we look at where forecasters think Lloyds shares might go next, we can’t ignore what’s happening to the economy. The UK is predicted to take the hardest hit from Middle East fallout of any major economy. At least, that’s the latest from the International Monetary Fund (IMF).
Thoughts of interest rate cuts spurring higher mortgage demand for Lloyds? That doesn’t seem likely. In fact, the threat of further rises is looming. Bank of England Governor Andrew Bailey, however, says he’s going to be cautious and not rush into any quick decisions.
But even putting interest rates aside, everyone is expecting further inflation. And when everything costs more, a lot of potential home buyers are going to put thoughts of moving onto the back burner.
Bright side
The IMF’s gloomy outlook might be depressing, cutting the UK’s growth outlook from 1.3% to 0.8% this year. But that’s still growth. It’s not like we’re plunging into a recession — at least not yet. Yes, slower growth is disappointing. But it’s no catastrophe. And the UK has beaten IMF predictions before.
The bank sector is in a strong position now too. Liquidity is fine. And I’d say the storms from today’s range of crises can comfortably be weathered.
That strength will figure in analyst forecasts, which currently suggest solid growth in earnings per share between now and 2028. It could mean Lloyds’ price-to-earnings (P/E) ratio falling to under eight again. They expect Lloyds dividends to rise almost 50% between 2025 and 2028. And that could push the yield above 5% again.
Verdict
Brokers have an average price target of 113p on Lloyds shares at the moment, more than 10% ahead of today. I see that as a realistic hope, and it’s only a short-term outlook too.
In the medium term — which could mean the next year or two — I still see danger for Lloyds. I wouldn’t be surprised to see a few more ups and downs like we’ve already had in 2026.
But for the long term, I still see strength in the UK’s banking sector and in the housing market. Lloyds is definitely one to consider, in my view.
