Stock market volatility

Notwithstanding inherent volatility in the VIX during the focus period, the CBOE Volatility Index is forecast to drop at a compound annual rate of 2.7% over the five-year period through 2024-25, to an average daily unadjusted close value of 17.1 points during the year. This is due to a large spike in the base year during the COVID-19 outbreak. Volatility remains at high levels as a result of spiralling inflation, higher interest rates and geopolitical uncertainty sparking concern in markets.

The average daily unadjusted close price of the VIX increased by a further 16.1% in 2019-20, to reach approximately 19.1. This increase was heavily dictated towards the tail-end of the financial year whereby the global outbreak of the coronavirus skyrocketed the VIX over February 2020, but to a far greater extend in March 2020. Stock markets across the globe plummeted in March 2020, as investors feared that the spread of the coronavirus would significantly impede economic growth, sparking a domestic and global recession. Investors continued to react to a string of developments in regards to the coronavirus outbreak, which included the spread of coronavirus officially being declared as a global pandemic by the World Health Organization, entire country lockdowns, supply chain disruption, currency and commodity market fluctuations, reduced levels of business and consumer demand and significant travel restrictions imposed across the globe. All of which, point towards a period of lacklustre global economic prospects causing fear among investors, spurring the dumping of stocks. Consequently, during the final two weeks of the 2019-20 financial year, VIX remained historically high, not falling below 60 points. The average daily unadjusted close price of the VIX was 27.3 points in 2020-21, representing a 43.2% increase on the year prior, based on the ongoing fear among investors surrounding a global economic slowdown caused by the outbreak of the coronavirus.

The average daily unadjusted close price of the VIX declined by 26% in 2021-22, falling to approximately 20.2 points. This generally reduction in the level of stock market volatility was predominately as a result of the continued COVID-19 vaccine rollout across the globe. However, during the final month of the year through 31 March 2022, the market contended with some significant global headwinds which resulted in some weakness. These factors will be discussed within the outlook section.

In the back-end of 2021-22, the Russian invasion of Ukraine began. Over the month through February 2022, the VIX rose by over 50% amid the uncertainty and tension between Western countries and Russia. On the morning of 24 February 2022, President Vladimir Putin announced that Russia was initiating a "special military operation" in the Donbas region, and proceeded to launch a full-scale invasion into Ukraine. This then led to various economic and diplomatic sanctions from Western countries, including the UK, towards Russia.

UK equity markets delivered a standout performance in 2025–26, outperforming both the US and European markets in local currency terms. Investors were drawn to the FTSE 100's so-called "dinosaur stocks" amid uncertainty surrounding artificial intelligence, while also valuing the large and reliable dividends many of its companies provide, inciting volatility. However, rising geopolitical tensions, particularly the conflict involving Iran, have introduced renewed volatility to the market and could reverse some of these gains if the situation escalates beyond a short-term disruption. On 3 March 2026, the FTSE 100 fell 2.75%, marking its largest one-day decline since Donald Trump's Liberation Day in April 2025. As uncertainty continues to weigh on investor sentiment, increased stock market volatility may lead investors to move capital into safer assets such as gold, putting further downward pressure on equity markets.