A fall in consumers’ discretionary income in the second half of last year is now thought by the Bank of England to have been the main culprit, together with weak house price inflation, for the sharp slowdown in spending. The cut in income is, in turn, blamed on higher taxes and higher petrol and utility bills.
But amid signs of strengthening activity in the housing market, the Bank expects consumer spending to pick up modestly soon, although it will stay below average over the next two years. Many City analysts believe that interest rates will be cut from the present 4.5%, perhaps as soon as early 2006.
On inflation, the Bank expects to meet its 2% target in two years’ time, although the consumer price index will remain above 2% until then. Inflation fell in October to 2.3%, the first reduction since September 2004.
Production costs are expected to rise in the next three months by 28% of timber and wood product manufacturers (not including furniture), according to the latest CBI quarterly survey. This compares with a similar percentage who report an actual rise in the summer, and with 32% who had predicted higher costs. Factory gate prices are expected to increase by 14%, compared with 6% who pushed through higher prices in the last three-month period.
The total volume of new orders is expected to rise in the fourth quarter by just 3%, says the CBI – a marginal improvement on the previous quarter. But the volume of deliveries to the home market is predicted to grow by 25% of survey respondents, although export deliveries are likely to decline sharply, with a third of firms expecting a quarter-on-quarter fall.
Consistent growth
In the longer-term, UK demand for timber and semi-finished timber products is anticipated to grow in real terms by 7% over the five years to 2010, says researcher Market & Business Development. Annual growth levels are expected to remain relatively consistent at between 1-2%. Timber prices are unlikely to change significantly from their present levels.
Real growth of 5% is forecast for the sawmilling and planing sector until 2010, but a decline of 1% is expected in 2006. The semi-finished product market is forecast to show moderate real growth but is expected to suffer continued pressure on prices.
The outlook for builders’ carpentry and joinery is for 3% growth over the forecast period but demand is expected to fall by 2% in 2006. MBD says there is potential for strong real term growth in timber-framed housing, decking materials, and wood-based flooring.
Housing enquiries
Meanwhile, the Royal Institution of Chartered Surveyors reports the fastest growth in house-buyer enquiries for two years; house prices have begun to firm; and new mortgages are up by 17% on the year. The volume of new orders placed with builders for private sector homes rose 5% annually in the third quarter.
But orders for commercial buildings fell by 16% in the third quarter and by 10% on the year. The total volume of new construction orders placed in the three months to September was 8% lower than in the previous quarter, with falls in all sectors apart from public sector housing and infrastructure. Total new order volumes were up 7% annually.
