New edition of @resfoundation's Macroeconomic Policy Outlook out today which focusses on the macro drivers of the labour market (with @jackhleslie)

Tl;dr: risk of a larger-than-expected unemployment rise demands policy action.

Short thread below…

Our jumping off point is the big uncertainty about prospects for the rise in unemployment: while the @bankofengland see the rise being less than the financial crisis the @OBR_UK see it as equaling the all time high…

This is obviously important because it tells us about the about amount of economic pain likely to be caused by the crisis...

....but also important because it tells us about the nature of the scarring effects on the economy.

So what's going on?

Two big differences between these forecasts: amount of labour hoarding ( @bankofengland assume firms will try and keep workers – which makes them pessimistic on productivity – see chart), and the size of the economic hit.

What are the data saying on each….

The (sort of) good news is that there is not *yet* a sign that productivity is jumping up in the data – fell in first months and is now pretty flat. These data are uncertain, though – and will be one to watch in coming months.

On GDP, the economy has – so far at least - bounced back more quickly than expected by the OBR.

BUT what matters is the extent to which output is below normal when the JRS ends next month (this chart shows up to June JRS has been cushioning most sectors in the data to June, but that will change).

On that, real time data from google mobility data suggests the rate of recovery in economic activity has slowed…

…and even if UK recreational mobility continues to increase – we’d need to see further improvements in workplace mobility to be consistent with the BoE forecast.

And with tighter restrictions clearly in the offing there has to be a high chance that the economy falters and the rise in unemployment is higher than under the BoE forecast.

Big takeaway is that policymakers need to respond to these macro forces and act to reduce the risk of a big rise in unemployment.