Lloyds Banking Group shares have been one of the FTSE 100’s standout performers. The shares have gained around 30% over the past year and outperformed the FTSE All Share by nearly 13 percentage points, powered by rising income, a 30% jump in the interim dividend and a steady flow of buybacks.
The Lloyds share price has defied gloom around the UK economy and political uncertainty, making it a consideration for both growth and income investors.
But the Lloyds chart is starting to show signs of weakness that investors should be mindful of. Lloyds shares have slipped through recent lows, and with two major catalysts landing on consecutive days in late October, investors eyeing an entry point may want to see tests of key levels before jumping in..
Lloyds technical picture
Lloyds shares topped out in mid-August, with the one-year trading range running from 81.38p to 117.1p. Since then, the pattern has been one of lower highs. The shares rallied back to 111.15p on 14 September but failed to hold, and selling picked up days later and the downside resumed.
The shares now trade around 109p, and the break below the 107-108p area that underpinned trading through September may be seen as a warning sign by technical analysts.
Once support gives way, the next logical stop is the 200-day moving average. At the last close, the shares were trading just over 5% above it, putting the average around 103-104p. That level also sits close to the 38.2% Fibonacci retracement of the rally from the 81p low to the 117p high.
With a major news event some weeks away, the technical levels could matter more for the Lloyds share price than they usually would.
Should that fail, 100p comes into view. It is a psychological round number that tends to attract buyers, and it lines up almost exactly with the 50% retracement of the past year’s move, at around 99p. A test of 100p would be an 8-9% fall from current levels, and would not require anything to go badly wrong at Lloyds itself.
The macro backdrop
The macro picture is not the most favourable for UK banks. The Bank of England voted 6-3 to hold Bank Rate at 3.75% at its September meeting, with three members pushing for a rise to 4%, as the ongoing Middle East conflict keeps oil prices higher and stokes inflation fears. UK CPI inflation rose to 3.1% in August, and the Bank expects it to reach around 3.75% in the final quarter and slightly above 4% in early 2027.
Markets are now pricing in tightening. SONIA futures imply Bank Rate rising to around 4.5% by March 2027. Higher rates are not straightforwardly bad for Lloyds, as they support structural hedge income, but as the UK’s largest mortgage lender, it is heavily exposed to households absorbing higher energy bills and rising borrowing costs.
The housing market is in a pretty poor state and rising interest rates will do it little favours.
GDP grew 0.4% in the second quarter, but energy price volatility is expected to weigh on real household incomes in the second half.
Budget day, then results day
As we move into October, Lloyds shares will face several events that could shift the dial for the stock. Chancellor John Healey delivers his first Autumn Budget on Wednesday 28 October, and banks could be a target. Speculation has centred on the 3% bank surcharge, down from 8% previously, with a rise to 5-6% seen as more likely than a full reversal. On the bank levy specifically, CFO William Chalmers has said each 1% rise would cost Lloyds about £75 million. This isn’t disastrous for profitability, but it may weigh on sentiment.
The following morning, Thursday 29 October, Lloyds publishes its Q3 interim management statement. Investors will be digesting any tax hit and a fresh trading update within 24 hours of each other, which is a recipe for volatility.
A cautious approach?
None of this undermines Lloyds’ longer-term case, rather they should provide food for thought for the more tactical investor. The balance sheet is robust, with a pro forma CET1 ratio of 13.1%, and the additional buyback of up to £1 billion provides a steady bid for the shares. Brokers remain positive, with a consensus target of around 126p and an overall Buy recommendation.
But much of the good news is already reflected in a share price up nearly a third in a year. With the chart breaking down, inflation rising and a Budget and trading update landing back-to-back, the risk-reward of Lloyds shares at 109p suggests caution. A pullback towards 100p would offer a more attractive entry into a bank with a credible growth plan through to 2030.