Geopolitical shocks, financial market, and economic dynamics: Insights from the United Kingdom

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Abstract

Geopolitical risk (GPR) has become an important factor influencing economic stability. This research scrutinizes the macroeconomic impact of GPR shocks on the United Kingdom (UK) by using a structural vector autoregression (SVAR) model with monthly data from 1992 to 2024. The macroeconomic variables are the Financial Times Stock Exchange (FTSE) 100 index, bank rate, consumer price index (CPI), industrial production, employment, and hours worked. The results show that GPR shocks influence the UK economy, leading to a decline in the FTSE 100, temporary inflationary pressure, and a minor effect on industrial production and employment, followed by an overshooting effect. While UK- and Russia-specific GPR indices exhibit similar patterns, their effects vary in intensity and persistence. Compared to other uncertainty measures, GPR’s impact is relatively short-lived, with the economy demonstrating a quicker recovery. This research contributes to the literature by collecting monthly data to apply SVAR-based analysis and investigating how UK-specific and Russia-specific GPR shocks affect key UK macroeconomic indicators. The findings suggest that these shocks depress the stock market and raise inflation. However, their effects on industrial production and employment are mild and short-lived compared with other uncertainty measures.

Keywords: Geopolitical Risk, Economic Uncertainty, SVAR, Forecast Errors, Industrial Production

Authors’ individual contribution: The Author is responsible for all the contributions to the paper according to CRediT (Contributor Roles Taxonomy) standards.

Declaration of conflicting interests: The Author declares that there is no conflict of interest.

JEL Classification: C32, D81, F51

Received: 16.10.2025
Revised: 12.12.2025; 26.12.2025
Accepted: 26.01.2026
Published online: 29.01.2026

How to cite this paper: Alsubaie, M. S. (2026). Geopolitical shocks, financial market, and economic dynamics: Insights from the United Kingdom. Risk Governance and Control: Financial Markets & Institutions, 16(1), 90–102. https://doi.org/10.22495/rgcv16i1p8