A surge in business spending on capital assets, combined with an increase in government spending, helped the UK economy grow above its long-term trend in the third quarter, and offset weakness in consumer outlays.
Company investment rose by 3.1% in the three months to September and by 6.9% on the year – to its strongest rate for two years. The news boosts hope that, after recent stubbornly weak spending, it will contribute significantly to future economic growth and help re-balance expansion as consumer spending becomes less buoyant. A report by the OECD, which concludes that a further rise in interest rates “is not compelling,” should help underpin business investment plans.
Within the private sector, construction industry investment rose by over 6% between the two latest quarters and by 23% annually. Outlays on computer hardware and software increased at annual rates of 82% and 31% respectively in the third quarter.
Meanwhile official figures confirm that the UK economy grew 0.7% in the third quarter and was up 2.7% year-on-year, despite a slowdown in household spending growth to 0.4% in the period July to September, from 0.9% in the previous quarter. Weaker retail sales growth in the third quarter, down to 0.7% from 1.9% in the second quarter, foreshadowed softer consumer spending overall. And in the three months to October total high street sales rose by only 0.6%.
The volume of furniture retail sales rose by 4% in the third quarter, after falling by nearly 1% in the second. From August to October sales volumes rose by nearly 10%, and by 4% annually; in value terms, demand for furniture over the quarter and on the year was up 10% and 6% respectively. In October the retail price of furniture dropped by 3.2% and eased to an annual rate of 2.6%, from 4.2% in September.
The CBI’s November poll suggests that high street sales fell for the second consecutive month, but sales of household furnishings grew strongly, probably reflecting the continued strength of the housing market. House prices continued to rise in November, taking the annual rate of increase to 5.3% amidst a dwindling number of properties for sale, says information provider Hometrack. According to the Bank of England the number of mortgage approvals in October was the highest since December 2003 and up by around1,000 on the previous month’s total.
In November, activity among builders and contractors grew robustly according the Chartered Institute of Purchasing and Supply. The expansion was broadly based, with the housing sector posting the strongest growth. The volume of new orders received by contractors continued to rise, albeit at a less marked rate than in the previous month.
Reviewing recent UK demand for timber and semi-finished timber products, analyst Market & Business Development (MBD) estimates that growth reached 4% in both 2002 and 2003, but was followed by a cumulative decline of 4% in the following two years. A decline of 1% is anticipated for 2006.
In its forecast for the period 2006-2011, MBD expects overall demand to rise by a modest 2% in real terms, with only moderate yearly fluctuations. Within the total, the market for builders’ carpentry and joinery is forecast to increase by 6% in real terms. Timber-framed windows are forecast to gain an increasing share from PVCu, and strong growth potential is identified in the timber frame buildings sector. Other areas of growth over the forecast period are likely to include decking materials and wood-based flooring, says MBD.
Overall demand in the sawmilling and planing sector is expected to rise by just 1% in real terms between 2006-2011, while sales of semi-finished timber products are forecast to increase by 3%. Particularly favourable growth is expected in the MDF market, but increasing production capacity in the UK and in Europe is likely to restrict further price rises.
