Heavily revised data from National Statistics has repainted the picture of the UK economic landscape. New figures reveal that growth in 2003 and into 2004 was significantly stronger than had been thought, but since spring 2004 it has slowed more abruptly than previous data implied.

Further, consumers scaled back their spending more sharply in the first quarter than had been thought – raising it by only 0.1% in real terms (0.3% previously estimated). Official figures indicate that spending on furniture and furnishings in the first quarter of 2005 rose in real terms by 2.2% compared with a year earlier, but fell by 2.7% on the fourth quarter of 2004. Floor covering sales slumped by 4.8% during the first quarter but were 2.7% higher than at the same time last year.

Retail sales

Figures from the CBI on annual retail sales volume growth in June are the worst since the survey began 22 years ago, and stores expect a similar pattern in July. A balance of 19% of respondents overall say sales were lower than a year ago, compared with 7% in May.

But among furniture outlets the situation is far worse. A massive balance of 84% of retailers report a drop in sales compared with June 2004. In May the figure was 77%, and an average of 73% saw poorer volumes than a year earlier during the second quarter.

The British Retail Consortium echoes these findings, saying that indoor furniture struggled during June, with consumers wary of large purchases, although garden furniture sales picked up.

In the high street, prices of furniture jumped by 1.9% in June, to an annual increase of 2.3%. Further back in the price pipeline factory gate prices of bedroom, dining and living room furniture fell 4.6% over the year.

The slowing housing market, which is denting sales of household-related goods, appears to be spilling over into consumer confidence. The overall index of confidence in the poll for June organised by Martin Hamblin GfK for the European Commission fell to -3, the third successive monthly decline. And after a seven-point fall in May, the measure of whether now is a good time to make a major purchase fell by a further point in June, to +4.

UK manufacturers’ total domestic and export sales of kitchen furniture rose by 4.9% in the year to May. Output of other domestic furniture was up 12.7%, but builders’ carpentry and joinery slipped by 3.7%.

A new forecast of UK demand for timber and semi-finished timber products by Market and Business Development points to annual growth of 1-3% in real terms between 2004-2009. Builders’ carpentry volumes are expected to rise by 1-2% annually, but demand for wooden containers is predicted to fall in real terms by 6%, although growth of 1% is expected in 2009.

Construction activity

UK construction activity increased in June, to a six-month high, according to the Chartered Institute of Purchasing and Supply. The improvement was underpinned by rapidly growing new orders. Housing activity rose modestly after three months of decline, and infrastructure also increased, after a decline in May, but the commercial sector was the most buoyant. In contrast, a report by Savills indicates that the pace of growth in commercial property development activity in June was the slowest for 25 months.

Government figures show that the total volume of new construction orders placed in the three months to May was 8% higher than at the same time last year and 14% up on the previous three-month period.

Further ahead, Experian Business Strategies estimates that the Olympic games win could boost UK construction by more than £8.6bn, but will particularly benefit the infrastructure and non-residential sector. Total output growth is forecast to be 1.3% this year, and 1.8% and 3.8% respectively in 2006 and 2007.

House prices softened in June but mortgage approvals have been increasing for the past six months. This, together with the new information on the past weakness of the economy and forward-looking indicators from the Bank of Scotland which point to below-trend growth by the end of 2005, increases the likelihood of a couple of interest rate cuts this year. And that augurs well for a revival in consumer spending in the medium term.