Analysts at UBS slapped a ‘Buy’ rating on shares in Lloyds Banking Group as the financial services giant looks to receive a bump to its bottom line from the elevated interest rate path. Jason Napier, analyst at UBS, said: “Given the tailwinds from rate hedges… we see strong future momentum
Samuel Norman
Thursday 30 April 2026 9:57 am
Analysts at UBS slapped a ‘Buy’ rating on shares in Lloyds Banking Group as the financial services giant looks to receive a bump to its bottom line from the elevated interest rate path.
Jason Napier, analyst at UBS, said: “Given the tailwinds from rate hedges… we see strong future momentum in profits as a relatively low risk expectation.”
Lloyds’ net interest margin – a key indicator of its profitability from lending – swelled to 3.17 per cent in the first quarter of 2026, up seven basis points from the end of 2025.
The firm’s structural hedge, which banks use to shield against interest rate volatility, was credited for this, with income from hedging for the year now expected to exceed £7bn.
The blue-chip lender’s net interest income is also expected to be “greater than” its previous target of £14.9bn for the year after a complete turn in the interest rate cutting cycle.
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Following the surging oil prices triggered by the Iran war, the Bank of England has adopted a more hawkish outlook after the global energy shock fanned the flames of inflation.
Lloyds – along with its peers – is tipped to bring in a greater cash haul on the back of this as interest rates stay higher for longer. In the bank’s own analysis, it predicted the first interest rate cut would arrive in the third quarter of 2027.
Lloyds still subject to ‘tactical challenges’
Still, despite a bullish upgrade, Napier noted there was still some hesitancy in going all in on UK banking stocks.
Read more Lloyds shares drop after income upgrade on higher interest rates
“We understand that the tactical challenges of buying a UK domestic bank into the 7 May local elections,” Napier said.
Industry sceptics are already beginning to circle the wagons as rumours of a potential bank tax rise with the FTSE 100’s Big Five – Lloyds, Natwest, Standard Chartered, HSBC and Barclays – tipped to report record profits in 2026.
Neil Wilson, investor strategist at Saxo Markets, added: “Banks could also be ripe for a tax grab soon” following Lloyds bumper first-quarter.
Fears have rose that a nightmare local elections for Labour could see Prime Minister Sir Keir Starmer ousted and with him, Chancellor Rachel Reeves.
Reeves has opted not to tax the banks in her last two Budgets, despite relentless lobbying from think tanks, rival politicians and even former Deputy Prime Minister Angela Rayner, who is tipped to take the helm should Starmer go.
When the tax question was raised on Wednesday, Lloyds’ finance boss William Chalmers said: “I would say that the profitability of banks is an incredibly important component of a successful economy.
“We’ve seen over £6bn lending over the course of this quarter. The only reason we’re able to do that lending is because we’re a profitable, successful institution that’s in the economy’s best interests.”
Read more Lloyds fires bank tax warning shot as industry ‘ripe for cash grab’
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