Lloyds Banking Group share price outlook for 2024 and beyond

How is Lloyds performing?

Lloyds Banking Group (Lloyds) is currently trading at around 59.00 pence (p) per share. This represents a significant 32% increase over the past year, showcasing the bank's resilience in a challenging economic environment.

One of the most attractive features for income-seeking investors is Lloyds’ forward-looking dividend yield, projected at 5.8% for 2025. This generous yield reflects the bank's commitment to shareholder returns, despite facing various headwinds.

Lloyds posted substantial profits of £2.4 billion in the first half of 2024. However, this figure represents a 15% year-over-year (YoY) decline, hinting at the challenges the bank faces in maintaining its profitability in the current economic climate.

The bank's performance is closely tied to the broader UK economy, making it an important barometer for investors looking to gauge the health of the nation's financial sector. As such, understanding Lloyds’ outlook is crucial for both existing shareholders and potential investors.

Positive factors supporting Lloyds' outlook

Firstly, Lloyds operates in a market with persistent high demand for essential financial services, particularly mortgages. As the UK's largest mortgage lender, the bank is well-positioned to capitalise on the nation's ongoing housing needs, providing a stable revenue stream.

Secondly, Lloyds enjoys significant economies of scale, allowing it to operate more efficiently than smaller competitors. This cost advantage is particularly valuable in a challenging economic environment where margins may be under pressure.

Thirdly, the bank boasts a vast customer base and a portfolio of well-known brands, including Halifax and Bank of Scotland. This strong market presence provides Lloyds with a solid foundation for customer retention and cross-selling opportunities.

Lastly, Lloyds’ substantial profits, despite recent declines, demonstrate its ability to generate significant returns even in difficult conditions. This financial strength provides a buffer against potential economic shocks and supports the bank's ability to maintain its attractive dividend yield.

What are the challenges facing Lloyds' share price rally?

Despite its strong fundamentals, Lloyds faces several significant challenges that could affect its performance in 2024 and beyond. Investors should carefully consider these factors when assessing the bank's outlook.

The primary concern is the changing interest rate environment. Recent rate cuts by the Bank of England (BoE) are likely to put pressure on Lloyds' net interest margins (NIM). As NIMs are a key driver of profitability for traditional banks, this could negatively impact Lloyds’ earnings in the coming periods.

Economic uncertainty presents another major challenge. The UK's unemployment rate has risen to 4.4%, raising concerns about potential increases in loan defaults and repossessions. This situation may require Lloyds to increase its provisions for bad debts, further eroding its income.

Regulatory and legal risks also loom large. Lloyds faces potential litigation costs from an ongoing car finance probe, which could result in significant financial penalties and reputational damage. Such regulatory actions can have long-lasting impacts on a bank's operations and profitability.

Finally, it's important to remember the cyclical nature of the banking sector. Banks are particularly sensitive to economic cycles, and any downturn in the UK economy could have a disproportionate impact on Lloyds' performance.

Lloyds' share price: analyst sentiment and trading activity

The current analyst consensus on Lloyds is a cautious "Hold" based on 10 ratings, with 3 Buy, 6 Hold, and 1 Sell recommendation. This mixed sentiment reflects the balanced view of Lloyds' strengths and challenges.

The stock has been assigned a "Neutral" Smart Score of 6 out of 10, indicating that it's expected to perform in line with the overall market. This score takes into account various factors including analyst recommendations, corporate insider transactions, and technical indicators.

Interestingly, trading activity shows some divergence between long-term positioning and short-term sentiment. While 86% of open positions are long, suggesting overall optimism about Lloyds' prospects, recent trading activity has been predominantly bearish. In the last hour, 75% of trades were sells, with 68% sells over the past week.

Lloyds client sentiment

This contrast between long-term holdings and short-term trading activity could indicate that while investors believe in Lloyds' long-term value, they are cautious about its near-term performance given the current economic headwinds.

Lloyds share price: technical analysis

Lloyds’ chart reveals a predominantly bullish trend from 2020 into 2024. The price has shown significant appreciation, currently trading near its highest levels at around 59.31p. This upward momentum is further confirmed by the price consistently staying above both the 50-day and 100-day moving averages, with the shorter-term average positioned above the longer-term one. The overall price action suggests strong buyer interest and sustained upward pressure.

Looking at momentum indicators, the moving average convergence/divergence (MACD) presents a bullish picture with its line positioned above both the signal line and the zero line. This configuration typically indicates positive momentum. However, the converging MACD lines hint at a potential slowdown in this upward trajectory, suggesting traders should remain vigilant.

From a support and resistance perspective, the current price level around 59.31p appears to be encountering some resistance, as evidenced by recent price consolidation. Previous resistance levels, notably around the 50.00p mark, seem to have transformed into support levels, reinforcing the bullish structure of the market.

The most recent price action shows a brief pullback followed by renewed buying interest, illustrated by a prominent green candle. While the overall trend remains bullish, traders should be mindful of potential resistance at current levels and stay alert for any signs of trend reversal or significant divergences in technical indicators.

Lloyds price chart

Lloyds share price: the outlook for Q4 2024 and beyond

Looking ahead to 2024, Lloyds presents a mixed picture for investors. While the bank's strong market position, attractive dividend yield, and proven ability to generate profits are positive factors, it faces significant headwinds that could impact its performance.

The key to Lloyds' performance in 2024 will likely be its ability to navigate the challenging interest rate environment while managing the potential increase in bad debts due to rising unemployment. The bank's success in maintaining its net interest margins and controlling costs will be crucial.

Investors should closely monitor economic indicators, particularly unemployment rates and housing market trends. These factors will have a substantial impact on Lloyds' loan book quality and overall performance. Additionally, any developments in the ongoing car finance probe could significantly affect the bank's financial outlook.