Here’s the growth forecast for Lloyds shares to 2026!

If this is true, Lloyds’ share price could add to the significant gains the company has already made of late. But it is of course not unusual for profits to fall short of analyst expectations.

Could the Black Horse Bank meet (or even beat) current City predictions? And should I buy Lloyds shares for my portfolio today?

The bull case

More than most other stocks, banks’ profits are highly dependent on broader economic conditions.

When times are good, credit activity increases and credit losses become less of a problem. With interest rates set to fall steadily, analysts expect the UK economy to pick up steam and boost profits at UK banks.

It is encouraging for Lloyds and its investors that economists have a positive view of UK GDP. For example, the IMF now predicts growth of 2.5% this year and 2.2% in 2025.

Lloyds will also benefit from a boost in housing demand that lower interest rates will certainly deliver. This is crucial given the bank’s position as Britain’s largest mortgage lender (over two-thirds of all its loans and advances are home loans).

Mortgage activity is actually already picking up, which is very encouraging. And so total mortgages on the company’s books rose again in the third quarter, by 1% to £310 million.

The bear case

But while economic growth could boost lending, the benefit of higher lending volumes could be more than offset by a sharp decline in margins.

Banks’ net interest margins (NIMs) are already falling as interest rates fall and market competition increases. Lloyds’ own NIM fell by 21 basis points to 2.94% between January and September, and the magnitude of the fall could become even greater if the BoE (as expected) were to periodically cut rates.

Lloyds’ profit expectations are also at risk as economic uncertainty continues. The UK economy faces significant growth challenges, including low productivity, labor shortages and high public debt, which could affect loan growth and lead to high levels of bad loans.

The economy also faces significant trade-related threats, which may have worsened following Donald Trump’s election victory. The National Institute of Economic and Social Research (NIESR) says new US tariffs alone could hurt UK growth by 0.7% and 0.5% in 2025 and 2026 respectively.

The verdict

Given these large-scale challenges, I believe Lloyds may struggle to achieve the strong earnings recovery that analysts currently expect. This is a view that the market seems to share, which explains the low price-to-earnings ratio of just eight times.

Some of the threats the bank faces (such as low economic growth and increasing competition) also threaten to undermine its long-term prospects.

So despite the low price of Lloyds shares, I would rather buy other FTSE 100 shares today.