Britain’s economic recovery appears to be on course as the drivers of growth begin to shift from government and consumer spending, to manufactured exports and business investment. But timber’s key UK markets of construction and furniture production are among sectors which will suffer subdued demand due to this realignment, at least over the short to medium term.

The second and third quarters’ strong, but unsustainable, growth in construction led the Office for Budget Responsibility to raise its GDP growth forecast for this year from 1.2% to 1.8%, but to revise down its forecast for 2011 and 2012 to 2.1% and 2.6% respectively.

The manufacturing Purchasing Managers’ Index saw the strongest monthly gain in 16 years in November, aided particularly by exports, and the fastest ever rise in jobs.

New construction orders

Official estimates of new construction orders were less cheerful. In the third quarter of 2010, orders for social housing and other public works dropped by around 25% and were 45% lower than a year ago.

In total, new construction orders fell 4% in the three months to September, and were down 14% compared with the same time last year. The extent of the overall downturn was limited by continued expansion of new private-sector housing and commercial project orders.

A more up-to-date insight is provided by the latest construction PMI. This reveals that activity levels grew mildly in November but stayed near an eight-month low. Constructors report the third consecutive monthly decline in house-building activity, with overall growth reliant on commercial and civil engineering. New order intake rose only marginally during November.

Further evidence of the continued slide in the housing market is provided by Nationwide’s house price survey. It records the fourth drop in five months – pushing annual growth down to 0.4% – and the lender predicted that prices may continue to fall in 2011.

Other data indicate a renewed drop in mortgage approvals during October, to a six-month low of 47,185. In contrast, consumer credit was the highest since May, probably a reflection of consumers bringing forward purchases to beat the January VAT increase.

This possibility is reinforced by the latest CBI survey of retailers. It suggests high street businesses saw a pick-up in sales growth during November and had raised expectations about Christmas trade, although the big freeze has hindered this. But only one in 10 retailers surveyed expects the overall business situation to improve over the next three months.

Furniture

Only 36% of furniture retailers in the survey achieved a year-on-year expansion in sales volumes during November, compared with 73% in October and 96% in September. Official estimates point to an annual fall of 8.5% in sales volumes in the three months to October.

According to pollster GfK NOP, the climate among consumers for purchasing major items, such as appliances and furniture, worsened further during November. Overall, confidence remains low, with consumers particularly worried over their own financial situations.

Clearly rebalancing the recovering economy will be painful for many consumers and businesses but, The Economist concludes, “the outlook is still broadly reassuring”.