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Lloyds (LSE:LLOY) has seen its share price rise an impressive 7.4% over the past month. Considering the fresh threats prompted by the Iran war — and following the stock’s stunning gains ascent in 2025 — it’s a remarkable rise in my view.
My opinion remains unchanged, however. In the current climate, and trading at 101.7p, Lloyds shares are in danger of a fierce correction. And my pessimism has risen further after fresh news on Tuesday (14 April) emerged.
So what’s happened?
Like any retail bank, Lloyds is at the mercy of broader economic conditions. When the economy slows and consumers feel the pinch, demand for credit cards, loans, insurance, and other discretionary products can sink. Loan impairments can also surge as borrowers struggle to make repayments.
Unfortunately for this FTSE 100 bank, it doesn’t have exposure to high-growth economies. It makes almost 100% of its profits from the UK. And the economic outlook in its home market is steadily deteriorating.
This was illustrated by latest International Monetary Fund (IMF) projections today. The body slashed its global growth forecasts due to shocks from the Middle East crisis. However, the UK suffered the largest downgrades of any major economy.
Bad omens
For 2026, Britain’s GDP is now expected to grow by 0.8%, down from the 1.3% previously forecast in October. The IMF also cut 2027’s growth forecast by 0.2%, to 1.3%.
These revised estimates reflect the shock of higher energy prices, and their impact on broader inflation and interest rates. The body predicted inflation “to pick up again temporarily toward 4% before returning to target by the end of 2027“.
Higher interest rates are beneficial for banks’ net interest margins (NIMs), a key measure of profitability. This is because Lloyds and its peers typically raise what they charge on loans faster than what they pay on savings. The problem is rate hikes can be a net negative for banks when times are already tough, and especially those dependant on a strong housing market like Lloyds.
And for retail banks, things will likely get tougher the longer the Iran conflict drags on, adding extra pressure to the economy. Incidentally, today’s IMF downgrade is the second in just a few weeks, after the Organisation of Economic Co-operation and Development (OECD) slashed its UK growth forecasts in late March.
What next for Lloyds?
The thing is, I don’t think these growing dangers are reflected in the Lloyds share price. And this leaves it in danger of a sharp correction. The price-to-book (P/B) ratio of 1.4 shows the bank dealing at a juicy premium to its balance sheet assets. It’s also well above the 10-year average of 0.9.
The FTSE bank has tools such as strong brand power and a broad product suite to help it maintain profitability. Ongoing cost-cutting should also support earnings. But the large and growing dangers it faces means I won’t be buying Lloyds shares for my portfolio.
