Lloyds (LON: LLOY) share price has been in a steep freefall in the past five straight days as concerns about the UK economy continued. It slipped to a low of 41.45p, which was the lowest level since July 15 of this year. It has crashed by almost 20% this year alone.
Why is Lloyds Bank crashing?
Lloyds Bank is the biggest banking group in the UK serving more than 26 million customers. As such, the bank tends to react to the happenings in the UK economy. It mostly does well in periods of significant success, which lead to more mortgage uptake and more consumer spending.
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Recently, however, there are concerns about the economy, with some analysts comparing it to an emerging market. The British pound has collapsed to an all-time low against the US dollar while bond yields have rallied.
All this happened after the new administration embraced more budget deficits by slashing taxes and boosting investments. Therefore, analysts believe that the health of the UK economy could be at stake as the sterling crumbles. Also, the policies are expected to spur more inflation and higher unemployment rate.
Another concern for Lloyds Bank is that its cost of equity is relatively high. A quick look at its financials shows that it has a cost of equity of about 15%. Barclays, which has a different operating model, has a ratio of 18%.
Lloyds share price has also crashed even as hopes of high-interest rates continue. The Bank of England (BoE) has already hiked rates seven times since December last year and analysts expect that it will deliver another 100 basis points hike in the near term. Higher interest rates could lead to higher interest income.
Another risk for Lloyds is that the collapse of the British pound could force foreign shareholders to exit their positions.
Lloyds share price outlook
The daily chart shows that the LLOY stock price rose to a high of 49.86p in September. As it rose, the stock managed to cross the important support level at 46.40p, which was the highest point on August 17. The bullish comeback faded shortly after Kwasi Kwarteng’s mini-budget.
It has crumbled below the 25-day and 50-day moving averages while the Awesome Oscillator ad the Relative Strength Index (RSI) have continued falling. Therefore, the stock will likely continue falling as sellers target the next key support at 38p, which was the lowest level on March 7.
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