Can the Lloyds share price do it again in 2026?

The Lloyds (LSE:LLOY) share price has been one of the outstanding performers in the FTSE 100 in 2025. Investors in the companyâs shares can smile after its 76% rise year to date.

In fact, since the start of 2024, shares of the banking giant have increased by a very impressive 103%.

However, the question on most investors’ minds will be whether the firm can continue to achieve such excellent returns next year.

Read on to find out.

Lowering interest rates

Itâs very important to understand the impact of interest rates on Lloydâs business. As a bank, its income is heavily determined by the interest rate set by the Bank of England (BoE).

Between December 2021 and August 2023, the BoE consistently increased interest rates from 0.1% to a high of 5.25%. It then maintained this high for a year until August 2024.

This was very beneficial to Lloyds, as it allowed it to raise the interest rates it charged to consumers faster than it raised the costs of the deposits it holds. This gap, called the net interest margin, helped boost its profit.

However, weâre now in the middle of a rate-cutting environment by the BoE. Just last week (18 December), rates were cut again to 3.75%. More rate cuts are expected in 2026.

This has the opposite effect to interest rate rises, as it compresses the net interest margin made by the bank. Interest made on loans typically falls at a quicker rate than interest paid on deposits.

For this key reason, the Lloyds may not hit the same level of returns in 2026 that it has over the past couple of years.

Other factors to consider

Not all is about interest rates, though. There are plenty of reasons to like the bank. For example, itâs the largest retail bank and mortgage lender in the UK.

For those investors who are bullish on the UK economy, this could be a great thing. This is because it will translate into more demand for more of its services, which means the bank can accrue more fees.

But the opposite is also true. When economic times are tougher, consumers could cut back on spending, which could adversely impact the companyâs earnings.

With higher taxes and cost-of-living pressures persisting, I believe weâre about to enter this kind of environment.

London property prices falling by 2.4% in the year to October is a strong indication of this. It means people are trying to sell their properties amid lower demand. As the largest mortgage lender in the country, this isnât good news for Lloyds, and in turn, holders of Lloyds shares.

Prediction

The conditions for Lloyd’s shares to prosper have been present over the last couple of years. If the UK economy enters a period where it thrives, I would be very bullish on the companyâs shares.

Unfortunately, I donât believe that year will be 2026. Cost-of-living pressures are becoming tighter, combined with lower interest rates. These arenât conditions for the bank to continue doing well in.

However, its shares arenât expensive either. With a forward price-to-earnings ratio of 11.5, I think they will remain relatively stable in 2026, just not repeat the same feats from the last two years.

Thatâs why I think investors should consider holding, but not necessarily buying its shares.

The post Can the Lloyds share price do it again in 2026? appeared first on The Motley Fool UK.

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Muhammad Cheema has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group Plc. 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.