Consumer confidence has been hit by interest rate rises and people are more cautious about making major purchases, although they are still taking advantage of heavy discounts in anticipation of a further rate rise. New figures also suggest that higher borrowing costs are significantly slowing house price growth.
The value of domestic furniture and furnishing sales in the first quarter of 2007, seasonally adjusted, was 0.4% lower than in the previous quarter but 1.9% higher annually. Without the effect of price changes, the volume of spending in the first quarter is estimated to have been 1.5% lower than a quarter earlier and 2.7% lower compared with the first quarter of last year.
In June the furniture retail price leapt by a massive yearly rate of 12.5% – the largest month-on-month rise since the start of measurements in 1947. But on the government’s preferred, but somewhat misleading measure which excludes the cost of housing, overall inflation eased to 2.4%, from 2.5% in May.
Total retail sales rose by 5.1% compared to June 2006, despite the bad weather, says the BRC, and like-for-like sales rose by 4.6%. Demand for furniture and floorcoverings showed their strongest growth since May 2006, but the gains were largely the result of widespread promotions and clearance discounts. But the bad weather directly hit sales of garden furniture. The BRC warns that discounting looks set to continue as the main driver of demand for furniture, since retailers face “very tough” trading conditions.
High street volumes
Results of an earlier survey by the CBI suggested that overall high street sales volumes grew more slowly than expected in June, but volumes were nonetheless rated above average for the time of year. Furniture and carpet sales fell for 2% of retailers, and sales growth for hardware and DIY retailers slowed sharply compared with May; however, nearly one in three retailers reported an annual increase.
The CBI survey also reveals that 52% of builders merchants saw year-on-year volume growth in June, although this was a further slowdown from the strong increase recorded in the two previous months. Further, the rate of house price growth more than halved in June, according to the Royal Institution of Chartered Surveyors, and its second-quarter report on the construction industry reveals that growth in workloads has slowed, but remains above the survey’s long-run average.
Public housing
The slowdown in activity was evenly spread across the industry, with only public housing bucking the trend. Scotland saw the fastest expansion in workloads while all other regions apart from Northern Ireland shared the drop in the pace of expansion. Nonetheless, average supplier lead times for construction products lengthened further in June, says the Chartered Institute of Purchasing and Supply and NTC, with stronger demand for raw materials and shortages of some inputs contributing to the deterioration. But official figures point to an annual rise of 5.6% in UK output of builders’ carpentry and joinery in May and a 5% increase in production of veneer sheets and plywood.
The latest official estimates of the volume of new orders placed with contractors in the three months to May show annual growth of around 6%, despite a 1% fall in orders for public sector housing and a 15% fall in orders for industrial premises. With developers voicing concerns over the cost of borrowing, expansion in the commercial sector lost some momentum, easing to a five-month low according to a survey by Savills. Optimism about future activity also eased, with the three-month outlook for office construction the lowest since August 2005. A forecast by Market and Business Development of prospects in the civil engineering sector predicts a 16% rise in volume output from 2008-2012. Air transport-related construction projects – the only area in this sector to use significant quantities of timber and wood products – is set to expand by 24% within the forecast period.
