Lloyds share price resumes decline after May’s defeat

Lloyds share price resumes decline after May’s defeat

Lloyds share price (LON:LLOY) resumed a 10-month downtrend following Theresa May’s historical defeat in the House of Commons.

Lloyds shares fell on Wednesday morning after the UK Prime Minister’s government was found to be in contempt of parliament after losing a parliamentary vote by 18 votes.

Shares in Lloyds fell as low as 54.29p before rebounding.

It was the first time in history a government had been found to be in contempt of parliament, a serious matter that resulted in the government being forced to publish the full legal advice it had wanted to keep secret.

The impact on Lloyds share price and the rest of the banking sector has not be driven so much by Theresa May’s triple defeat on Tuesday but more the chances of her Brexit deal being passed looking ever more unlikely.

Tuesday’s contempt vote was followed by Brexit debate where numerous MPs said they would vote against her deal.

The outcome of the parliaments meaning vote 11th December could see the UK hurtling towards a ‘No-deal’ scenario, and the worst outcome for markets, particularly shares in UK banks.

Both the government and the Bank of England have warned leaving the EU without a deal would lead to significant reduction in UK GDP over the long term.

Today’s move in Lloyds share price is evidence investors will not be hanging around in bank shares to see the full impact.

Lloyds profitability

The Bank of England recently published stress tests on UK banks which highlighted the banks were adequately capitalised to deal with any negative economic fall out. However, such a scenario is likely to impact heavily on the banks’ profitability.

The Bank of England predicted the UK economy could enter recession and contract by 8%, such a reduction would hit Lloyds’ profitability significantly despite being well capitalised.

Mark Carney also told the Treasury Select Committee prices food prices could rise between 5-10% putting further pressure on households, this in turn could increase the rate of defaults on debt provided by banks such as Lloyds.

A torrid 2018 for Lloyds shares

Despite posting a strong start to 2018, Lloyds share price has been in steady decline entering a technical bear market with a decline of over 20% from highs of 72.3p to a closing low of 54.5p.

The decline comes in-spite of an 18% increase in statutory profit after tax to £3.7 billion in the nine months to 30th September.