Lloyds (LSE:LLOY) is one of FTSE100The company has gained the most this year, and its share price has increased by 76% since January 1. But with the UK economy expected to weaken in 2026, could these types of retail banks begin to struggle?

One particularly bullish analyst has nothing to do with this. For Lloyds, they expect the share price to rise a further 15% by next Christmas, surpassing £1 and reaching 110p per share.

That’s much less growth than the bank will see in 2025. But it’s still quite a spectacular forecast – combined with expected dividends, it suggests Lloyds shares will deliver a total return of close to 20% over the next 12 months.

However, this is only one of 17 price forecasts on the Black Horse bank. And not all of them can be right! So what can we realistically expect from the FTSE in 2026?

Looks good!

Recent price increases are largely due to the resilience of the housing market. While the wider economy continues to struggle, the company’s mortgage business remains strong, which is crucial given Lloyds’ role as the UK’s largest lender.

On this front, things look encouraging ahead of the New Year as well. Nationwide forecasts house price growth of up to 4% over the next 12 months. With interest rates expected to continue to decline and the increased competition in the mortgage market, I’m not shocked by this brilliant forecast.

Further cuts in Bank of England interest rates could further boost Lloyds’ profits (along with its shares). The knock-on effect on personal and business loans can be significant.

Lower rates could also aid the bank avoid crushing loan impairments, further boosting investor sentiment. Lloyds is already impressive on this score – impairment charges of £176m in the third quarter were largely unchanged on the previous year, helping the bank beat earnings estimates for the quarter.

What could go wrong?

But let me be sincere. Even with all this, I’m much less confident about Lloyds in the year ahead.

Thanks to this year’s rapid growth, the forward price-to-book (P/B) ratio is 1.3 times. This is higher than the 10-year average of 0.8 and shows that the bank’s stock is valued at a premium to its net asset value.

Given the risks Lloyds faces, this could limit price growth or even cause it to fall sharply if information flows deteriorate. And in my opinion, both scenarios are very possible in the New Year.

One danger is that the UK economy remains in dire straits, impacting revenues and causing an boost in bad loans. Recent events in this area do not inspire optimism – in November, the Office for Budget Responsibility (OBR) predicted growth of 1.4% next year and lowered its forecasts until 2029.

Big questions also hang over Lloyds’ net interest margin (NIM) as interest rates fall and competition increases in the market. Finally, there may be more panic when the bank works out the final bill for financing the fraudulently sold car.

The last word

I didn’t predict the stunning rise in Lloyds share prices this year and I could be wrong again. I won’t add a FTSE 100-listed bank to my portfolio, especially given its sky-high valuation. However, I think less risk-averse investors should consider this option.