Risk perceptions and economic activity in the United Kingdom

Nicholas Vause and Carolin Pflueger

Recently, Pflueger, Siriwardane and Sunderam (2020) proposed a new measure of investor risk perceptions based on the cross-section of stock prices. Using that measure, they found that when risk perceptions are high, the cost of capital of risky firms is high and subsequently real investment and employment decline in the United States. In this post, we show that similar relationships exist in the United Kingdom. In 2023 Q1, the UK measure fell to its lowest level since the outbreak of the Covid pandemic, indicating higher risk perceptions and potentially foreshadowing weaker economic activity. This indicator may be helpful for policymakers, as it could serve as a useful measure of risk perceptions relevant for future economic developments and monetary policy.

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How have recent changes to the demand for workers affected the unemployment rate?

Tomas Key

During the recovery from the Covid pandemic, the demand for workers rose to unprecedented levels in the UK. The number of jobs that firms were looking to fill increased to 1.3 million in the middle of 2022, 60% higher than the level in the last three months of 2019. The amount of job vacancies has fallen substantially over the past year, but remains at a high level. This post discusses how those changes to the demand for workers have affected the unemployment rate. In particular, it outlines how an equilibrium model of the labour market can help to explain why there appears to have been a change to the relationship between job vacancies and unemployment in recent years.

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Finding a Match

Bradley Speigner.

Is falling unemployment masking a broader deterioration in UK labour market performance? The ease with which a typical job seeker lands a job is a crucial indicator of the health of the labour market, which cannot be fully inferred from just a casual glance at the headline unemployment rate. It is true that unemployment has declined quite rapidly recently. But this is because job openings have been unusually abundant while the labour market’s capacity to match individual workers to available jobs quickly has actually worsened. This capacity is referred to as matching efficiency, and it started falling in the UK even before the 2008 recession.

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Human capital depreciation during unemployment – does it matter for monetary policy?

Lien Laureys

In many countries the great recession that followed the financial crisis led to sharp rises in not only the rate, but also the duration of unemployment. These were bad in themselves, but many were further worried that because lengthy unemployment spells are thought to erode workers’ human capital, productive potential would be damaged. The question I ask is whether this should affect the conduct of monetary policy. The short answer is no. But it may still be a question worth exploring further.

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