In spite of countless predictions to the contrary the house market remains strong.
And as construction powers ahead, productivity improvements across the economy have helped drive up corporate profits, adding further weight to the argument for higher borrowing costs. But new figures show that demand for furniture is weakening, as consumers become wary of increasing their burden of debt with big-ticket purchases.
The renewed strength in the housing market is confirmed by the Financial Times and Halifax. Their indices show that prices stayed on an upward trend in March; the FT index indicates an annual rate of 15.1%, while Halifax data points to 18.5%. Nationwide earlier reported an annual rise of 16.7% and revised its forecast for this year up to 15%.
On the supply side, 15,629 public- and private-sector applications to register new home starts were made to the NHBC in February – 3% more than in the same month last year. Private sector starts also rose 3%, to 13,919.
Purchasing managers report that house building activity continued to grow for the 62nd successive month in March, although the rate of increase was higher in the commercial sector. The pace of activity in civil engineering construction eased during the month. Construction looks set to continue expanding, says the Chartered Institute of Purchasing and Supply, with a further rapid growth in new orders in March, and a strong rise in jobs.
However, total home and export market demand for British made builders’ carpentry and joinery dropped by 7.3% in February, and by 2.5% compared with 12 months earlier.
Profitability among the nation’s manufacturers in the fourth quarter of last year, at 8.6%, was the highest since 1999 as strong gains in productivity drove the upturn.
But confidence among UK consumers fell slightly in March. This was due mainly to worries over rising interest rates, says pollster Martin Hamblin GfK, following research conducted for the European Commission. And it was reflected in a decline in the major-purchases measure, which fell for the second successive month, from +14 in February to +9.
The impact of consumer caution is evident in March figures on retail volumes from the CBI: year-on-year volume growth in high street demand for furniture was achieved by only 4% of retailers, compared with 25% in February, and 60% in January when sales were in full swing.
Retailers generally were hit by poor weather in March, says the CBI, and sales grew at their slowest rate for six months. But forecasts for April are strong.
Official estimates indicate that the value of consumer spending on furniture and furnishings rose by just 0.9% last year, down from annual growth of 20.8% in 2002.
Meanwhile shop prices of furniture rose by 2.8% in February, to an annual rate of 3.5%, across a range of products from major suppliers. According to government sources, the increases reflect strong price recoveries after the January sales, particularly for sofas.
Manufacturers’ prices for bedroom, dining- and living-room furniture rose by 5% over the year to February while kitchen furniture was up 7.2%. Furniture makers’ raw material and fuel costs rose by 2% over the year. Output by UK kitchen furniture makers rose by 6.4% in the year to February, but output of other furniture slipped by 1.3%.
Although the UK economy is strong and is set to continue growing robustly for the rest of the year, it also remains seriously unbalanced. Shock treatment to rein in high consumer borrowing, in the form of a single, big hike in interest rates, is beginning to be seen by some analysts as a looming necessity.
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