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Short-term uncertainty could hold back the Lloyds share price

Lloyds Share Price

The Lloyds share price (LON:LLOY) is down by 7.68% during the afternoon session on Tuesday. It is the seventh day out of the last eight that the Lloyds share price has been in the red. However, despite the recent dip, it has been a solid 2021 so far the the FTSE 100 company, which has added 23.88% to its share price since the turn of the year. A creeping uncertainty over the recovery of the UK economy has been reflected in the Lloyds share price. However, it could provide an opportunity to find value for those whose faith remains strong in the UK’s outlook.

UK Outlook

When the UK economy is doing the well, the Lloyds share price will grow alongside it. Therefore, for investors curious about the current state of the major bank, it is useful to paint a broader picture of where the country is at on the whole.

Despite the uncertainty, it is not all doom and gloom for the UK economy, which is clearly making strides, albeit stumbling at times, towards a full recovery. Enough for the the IMF to forecast that the British economy will grow by over 5% this year and the next.

Strong growth within the UK could be good for Lloyds for a number of reasons. Firstly, its means lower default rates and higher demand for credit. It could also result in higher interest rates being introduced down the line, which could lead to Lloyds getting more income from mortgages.

Risks

However, for investors with their eye on the Lloyds share price, there are a handful of events which could derail the UK recovery. Firstly, the sustainability of the UK housing market. A large portion of Lloyds’ business comes from being a mortgage lender. Therefore, it benefitted from the stamp duty holiday and the ongoing housing boom. However, as the policy is phased out, property purchases may cool off, causing Lloyds’ revenue to do the same.

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With restrictions removed it remains unclear what the impact will be on infection rates and hospitalisations. Professor Neil Ferguson, British epidemiologist, has warned that the UK is in for a difficult summer, with Covid cases in the UK possibly reaching 200,000 a day, and hospitalisations getting to 2,000 admissions per day.

In the short-term it is likely that at best there will be uncertainty. This might not be what investors want to hear as the Lloyds share price could take some time to find its momentum again.

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