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2025 has been a fantastic year so far for the Lloyds (LSE:LLOY) share price. The leading British banking stock has seen its valuation climb by almost 40% since the start of the year, reaching its highest point since 2015. But could it continue to climb to £1 for the first time since 2008? Let’s explore.
Investigating Lloyds’ performance
There are a variety of factors driving Lloyds shares upward right now. But arguably the most significant is the higher interest rate environment bolstering the bank’s lending margins. Lloyds isn’t the only financial institution benefiting from this favourable environment, with shares like Barclays and NatWest also surging to impressive heights.
With the Bank of England cutting interest rates, this gravy train won’t last forever. But looking at the bank’s structural hedge portfolio, its elevated profitability could continue for a little while longer even in a falling interest rate environment. That’s because these structural hedges effectively allow Lloyds to lock in a fixed interest rate for a prespecified duration through complex floating-to-fixed cash flow conversion derivatives.
As more money is flowing to the bottom line, management has been busy executing an enormous £1.7bn share buyback programme as well as hiking dividends. So, with that in mind, it’s not surprising to see the Lloyds share price outperform across the first half of the year. But what will it take for shares to climb even higher?
The journey to £1
A big driver of the Lloyds share price is its ties to the British economy. As a huge business and mortgage lender, the bank is sensitive to shifts in UK GDP growth. Sadly, for the most part, economic expansion in Britain has been sluggish for most of the last 15 years. And while there was hope of a potential turnaround in 2025, such performance has so far proven to be quite elusive.
For Lloyds shares to continue climbing to £1, the economic landscape would likely need to improve. Similarly, some clarity in the regulatory landscape would likely go a long way to boosting investor sentiment. That is, of course, if the Court ruling regarding motor finance reselling goes in Lloyds’ favour, or if it doesn’t, the fallout doesn’t exceed the £1.15bn the bank has set aside to cover claims.
These are obviously out of management’s control. But the leadership team can still strive to achieve higher margins through improving operational efficiency.
The bottom line
All things considered, I think the odds of Lloyds reaching a £1 share price again are pretty good in the long term, providing that economic conditions steadily improve over time and no new spanners are thrown into the works. Having said that, this price target is reliant on a combination of positive catalysts that may not materialise in 2025.
In other words, it could be several years before this threshold is met – a conclusion that institutional analysts have seemingly also reached, given the average 12-month share price target is currently only 80p. Nevertheless, for long-term investors seeking exposure to the British banking sector, investigating Lloyds further could be worthwhile.
