The latest figures on housing and retail sales suggest that consumers have absorbed the August rise in interest rates. But this shrugging off of higher borrowing costs, combined with new data suggesting inflation pressures are spreading, makes a further interest rate rise before the year’s end more probable.
In the building industry, new construction orders placed with contractors during the 12 months to July rose in volume by 8% compared with the previous 12 months. Orders in the three months to July were 6% higher compared to the same period a year ago.
In the latest three months orders increased for commercial projects, private housing and infrastructure work, and more than offset falls in the public housing and industrial sectors. Overall, new orders in the three months to July were up 16%.
House prices rose for the fifth consecutive month in August, hitting the fastest pace since May 2004, according to the Royal Institution of Chartered Surveyors. The number of would-be buyers accelerated at the fastest rate since September 2003, while stocks of available property were static at a near two-year low.
Sharp growth
Furthermore, the August purchasing managers’ survey reveals a slump in housebuilding during the month, after a short-lived recovery in July. But August saw the sharpest growth in construction activity overall for five months, accompanied by an increase in buying of construction materials, and solid growth continued into September.
High street sales growth remained strong over the summer, and demand for furniture picked up during August, with yearly growth of 5% in value terms. In the three months to August sales of furniture also rose by an average 5%. The volume of sales grew by 3% in the year to August, down from a rise of 4% in July.
Evidence from the British Retail Consortium is that beds and bedroom furniture and storage sold better than lounge and dining suites during August, and that discounting is still driving sales of larger items. The CBI found signs that sales of furniture recovered strongly in the year to September and overall sales remained relatively robust.
The average shop price of furniture rose by 0.7% during August, to an annual rate of 1.8%, compared with a fall of 1.8% the previous month. Government figures show that consumer prices rose by 2.5% in August, up from 2.4% in July. The retail price index, which includes housing costs and is used as a benchmark in fixing pay rises and in index-linked contracts, was up 3.4%, from 3.3% in July. The CBI forecasts that the RPI will peak in the first quarter of next year at 4.1%.
Manufacturers’ prices
UK manufacturers’ factory gate prices for wood and wood products rose by an average 0.3% in August and were 2.1% higher than a year earlier – compared with 1.6% in July.
Output of most timber and wood products by UK firms fell during August; the exception was kitchen furniture, which grew by over 3%. Other figures show that UK imports of timber rose by 6% between the two latest three-month periods to July, while imports of manufactured wood products were up 3%.
On labour costs, National Statistics reports that annual growth in the three months to July was 4.4%, compared with 4.3% the previous month. In manufacturing, average earnings growth eased from 5.9% in June, to 5.5%.
But unemployment is still on the increase according to the Labour Force Survey, and gloom about job prospects helped in part to fuel a dramatic fall in consumer confidence during August. Nonetheless the CBI forecasts that the economy will expand by 2.7% this year – faster than previously expected – before growth eases back to 2.5% in 2007.
