Where will the Lloyds share price move in the future?

After gaining momentum, the Lloyds share price seems to be falling. Dylan Hood takes a look where this stock could go in the future.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

At the start of 2021, the Lloyds (LSE: LLOY) share price seemed to be gaining momentum. However, peaking in June at just under 50p, the share price has since dropped over 12%. Lloyds has delivered a stellar 62% year-on-year return, but can pit regain this trajectory in the future?

UK economy and housing

Lloyds is a British retail and commercial bank. It doesn’t operate overseas and doesn’t have an investment banking arm. This makes the firm heavily reliant on the UK economy. As my fellow Fool Roland Head pointed out, Lloyds is planning to enter the landlord market, building and renting out properties to the UK public. It’s already the UK’s largest mortgage lender so has experience in the housing market. And I expect the added revenue from rent to push up the Lloyds share price in the future. However, this move isn’t likely to provide an immediate boost for the bank.

Looking more broadly at the UK economy, it seems a rise in inflation could be on the horizon. Analysts from the National Institute of Economic and Social Research indicated that CPI could rise to 3.9% in early 2022. This is almost double the Bank of England’s target. If this is the case, we will likely see interest rate hikes, which could complement the Lloyds share price as banks will be able to charge higher rates for lending. Again, this factor is likely to be a longer-term benefit for the Lloyds share price, but the coming months may grant more clarity on CPI direction.

Inflation outlook

As Lloyds is so heavily reliant on the UK economy, it’s worth examining inflation forecasts further. In the US, Fed Chairman Jerome Powell has hinted he believes US inflation to be transitory. Most recent price gains have occurred in categories such as cars, flight tickets, and hotel rooms. This is to be expected as the economy reopens after the pandemic. Therefore, it could be rational to assume that any UK inflation concerns may also be short term, which may limit growth in the Lloyds share price beyond 2022.

That said, Michael Sanders of the Monetary Policy Committee (MPC) alluded to a tapering of Quantitative Easing (QE) in July. QE is the purchase of government bonds by banks to create new money in the economy. This signifies longer-term inflation for the UK economy, which could be good news for the Lloyds share price.

Lloyds share price: my verdict

I think the biggest factor for the Lloyds share price moving forward will be how inflation pans out. At the moment, there seems to be no clear-cut direction for future interest rates. I will be closely monitoring the MPC and Fed announcements over the next few months before considering purchasing any UK bank shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Dylan Hood has no position in Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »