Risks to UK growth in the second half of 2011 | EEF

Risks to UK growth in the second half of 2011

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This week we are publishing our mid-year review of Economic Prospects 2011. Today's blog summarises the risks to our central outlook for the UK Economy.
Consumer spending
We already expect weak household spending in 2011, but squeezed real income could yet hit consumer sentiment and disposable income harder, which would further reduce consumption
What we'll be watching:
Consumer confidence indicators give an indication of sentiment and consumers' willingness to spend.
A significant sign that households are struggling with reduced disposable income would be increased numbers of households falling into arrears on their mortgages.
Labour market
We expect the unemployment rate to remain fairly static this year, but other indicators can give us more information about the underlying health of the labour market
What we'll be watching:
Outflows from claimant count: limited outflows would suggest a stagnant labour market.
Numbers of people taking a part-time job when they wanted a full-time job reached their highest level on record in the three-months to May. If this worsens it would indicate a deterioration in labour market conditions, and may lead to a further squeeze on household incomes.
Business investment should grow strongly in the second half of 2011 but this could be hampered by increased commodity prices putting pressure on margins or businesses losing confidence in the face of a faltering global recovery.
What we'll be watching:
Surveys on investment intentions have remained upbeat, intentions remaining firm would indicate that companies are looking through current risks with confidence about the medium-term economic outlook. A significant weakening of private sector surveys would be a red flag for growth, however.
If the availability of finance remains restricted and SMEs' demand for bank finance fails to pick up, this could limit the contribution from investment to growth.


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