Lloyds share price outlook: No clear catalyst, just avoid

Lloyds (LON: LLOY) share price had another weak performance in August as concerns about the British economy continued. The stock dropped by more than 4% from its highest level during the month. In all, Lloyds shares are nearing a bear market after falling by over 175 from the highest point this year.

Lloyds and the UK economy

Lloyds Bank is closely tied to the British economy because it serves more than 25 million customers in the country. Therefore, the bank does well when the economy is thriving and vice versa.

Recent economic numbers revealed that the economy is not doing well. On Friday, a report by Nationwide Society showed that the house price index (HPI) dropped by 0.8% in August after falling by 0.3% in the previous month. 

This decline translated to a YoY contraction of 5.3%, the biggest plunge in years. Economists were expecting house prices to drop by 0.3% and 3.9%, respectively. 

The housing sector is important for Lloyds Bank because it is one of the biggest mortgage providers in the country. At the same time, the company has ambitions to become the biggest landlord in the UK.

Another report revealed that the British manufacturing output is still struggling. The PMI figure by S&P Global showed that the PMI dropped to 42.5 in August, meaning it is still in a contraction mode.

Therefore, these numbers mean that Lloyds Bank lacks a clear catalyst for growth in the coming months. The only good thing is that the Bank of England (BoE) has raised rates several times this year. And the bank’s chief economist believes that rates will remain at an elevated level for a while. 

Lloyds Bank benefits from higher interest rates by boosting its net interest income. The most recent results showed that its NII jumped again in Q2.

Lloyds share price forecast

Regular readers know that I have been critical of the Lloyds stock price for a while, as you can see here and here. The stock has been a clear underperformer for more than a decade and it lacks a clear catalyst.

Turning to the daily chart, we see that the LLOY stock price has been in a strong bearish trend after peaking at 51.41p in February this year. In this period, the shares have remained below the descending trendline shown in black. This line connects the highest levels since February.

The shares remain below the 50-period moving average and is slightly above the key support level at 41.70p. Therefore I suspect that the shares will continue underperforming in September, with the next level to watch being at 40p.