Remember the pre-election talk of the end of boom and bust? As it scans the present economic scene the government must be wondering what went wrong as harsh new realities emerge. An outright recession appears unlikely but the latest figures suggest increasingly difficult times ahead as manufacturers and exporters sink deeper in the mire, while domestic demand soars alarmingly.

Official figures reveal that in May overall manufacturing fell for the fifth month and output declined by 1.6% between the two latest quarters. At the same time, demand for sawmill products dropped by 5.5%, while output of plywood, veneer and furniture was down 2.5% and 1.7% respectively. Only timber products related to housing did better than the overall average, with quarter-on-quarter growth above 2% for carpentry and joinery and for kitchen furniture.

In contrast, the Confederation of British Industry‘s June survey found that ‘underlying consumer demand remains robust’, although a slight easing in growth is expected for July. However, furniture was a weak spot, with 31% of retailers reporting lower volumes than a year earlier.

Further evidence of buoyant consumer spending, provided by the British Retail Consortium, indicates that sales grew in June at an annual rate of 5.7% in value terms. Furniture sales are described as only ‘reasonable’, with some buyers ‘clearly waiting for the summer sales’.

Meanwhile the housing market continues to power ahead. The Bank of England says mortgage lending surged during May, as consumer confidence soared to its highest level since early 2000. The Bank reports that net mortgage lending increased by £413m, to £4.23bn, and the number of mortgage approvals leapt to a record 107,000, compared with 100,000 in April.

House prices continue to rise, with those in London, the south and the east still outstripping the remainder of the country, according to the mortgage lender Halifax. There is growing concern, however, that the steep rise in London prices is fuelling a bubble which may soon burst.

Official estimates point to a 1% reduction in private sector home starts in the three months to May compared with the previous three months, and a 5% drop on a year ago, suggesting that there are few prospects of an increase from the supply side. Orders placed with contractors for private housing in the three months to May were 7% lower than a year earlier.

But growth in total construction will outpace the UK economy over the next three years for the first time in more than a decade, according to Construction Industry Forecasting and Research. It projects that output will accelerate to 2.4% this year and continue rising to 2003, when annual growth is expected to reach 4.1% – the strongest rate since 1989. Spending on repair and maintenance is forecast to grow faster than new construction during the next three years, with an increase of over 10% in the public housing sector by 2003.

Yet despite evidence of buoyant housing demand, a growing number of analysts argue that the market is simply lagging behind the national trend towards slower economic growth. They believe that after another couple of good months, the difficulties in manufacturing will spread across most parts of the economy. Already the contagion is hitting the tourist industry and the media, while data from the labour market are cited as evidence that unemployment will rise before the end of the year, sapping the confidence of shoppers and house buyers.

Indicators of recruitment activity deliver a stark message. Job advertising in the national press fell for the sixth successive month during June, according to the Recruitment and Employment Confederation. The volume is falling at its fastest since January 1992, when the nation was emerging from the last recession. Furthermore the Confederation’s index of permanent-staff placements has suffered the sharpest decline in its four-year history.

However, commentators believe that the housing crash of the late 1980s and early 1990s is unlikely to be matched because the slump in prices is not likely to be repeated.


Related Files
Manufacuturing Output
Builders’ Joinery and Veneer Output
Builders’ Carpentry & Joinery, Wooden Container Prices
Wooden Furniture Output
Wood and Wood Products, Cost and Prices
Furniture Costs and Prices
Housing Starts and Completions
New Construction Orders