Recent indicators from several parts of the UK economy foreshadow a possible short-term slowdown in demand from home builders for timber and timber products.

The latest figures on UK manufacturing production, the purchasing managers’ index of service sector output, and the indices of retail sales from the British Retail Consortium and the CBI, were all weaker than had been expected.

However, the Bank of England’s Monetary Policy Committee decided earlier this month that neither the outlook for inflation, nor the state of the economy overall, justified a cut in interest rates. But some city analysts do not rule out an activity-boosting rate cut in the next month or so, amid fears of a looming economic slowdown.

As TTJ was going to press the Nationwide forecast that annual house price inflation in the UK will slump from its current level of 9.7% to 0% by this time next year.

Price peak?

Other reports on the housing market suggest that prices have already peaked in response to cooling demand. According to the Halifax bank, average prices fell 0.5% in October after a 0.6% decline in September – the first time its index has fallen for two successive months since spring 2005. But the Financial Times says that the average figures conceal falling house prices in the north of England and the Midlands since the summer, while other data suggest that mortgage approvals for house purchases dropped to their lowest in two years in September.

The latest from the nation’s building sites, provided by the October CIPS/NTC survey of the UK construction industry, shows that although activity expanded “robustly” during the month, rates of output, and new order and employment growth all continued to weaken.

Home builder Redrow added to woes about the housing market by warning that it expected to sell 10% fewer houses in the first half of its financial year compared with the same period last year, and Bovis said its average prices would fall by 3%.

A glance in the rear-view mirror shows that in the first half of 2007, UK imports of builders’ carpentry and joinery rose by 7% compared with the second half of last year and were up 15% year on year. In contrast, exports of these products were unchanged on the previous half year, but were 8% lower than in the first six months of 2006.

Construction orders

Looking to indicators of medium-term demand for timber products, total construction order volumes added to the pipeline in the third quarter of 2007 fell by 2% compared with the same quarter a year earlier, and were down by 13% compared to the previous three-month period, according to official figures.

New orders for private-sector housing placed with contractors in the third quarter fell by 13% on the previous quarter, and by 9% compared with the same period a year earlier. Orders for private-sector commercial buildings were flat compared with a year earlier, but orders for new industrial work fell by 21%.

Oxford Economics forecast that construction industry output will pick up over the next few years and by 2.8% in 2009. It adds that “new building is likely to grow much more strongly than repair and maintenance, and housing is likely to grow a little more modestly than construction of other types of buildings, with private commercial property leading the way”.

Over the medium term, work for the 2012 Olympics housing and commercial developments in the Stratford area will begin to be reflected in increased orders for materials, and will be followed by activity on the 2014 Commonwealth Games-related construction in Glasgow.

Forecasting future trends in more detail, analysts at Market & Business Development expect that public-housing construction will grow in real terms by 76% between now and 2012, while private housing output is projected to rise by 35% in real terms. Demand for doors, door frames, windows, window frames and conservatories for residential use will expand by 14% in real terms between now and 2012, with growth rates peaking at 4% in 2009, predicts M&BD.