The Bank of England had little option other than to keep base interest rates on hold this month in the face of weaker housing and economic data. And its new prediction that house prices are likely to fall has led analysts to doubt that there will be another interest rate rise in the foreseeable future.
Certainly, with confidence in the timber and allied industries already at a low ebb, according to a CBI poll at the end of September, any additional pressure on margins would exacerbate the situation.
Twenty-three per cent of timber and wood product manufacturers, other than furniture makers, are more optimistic about the business situation than they were three months earlier, but 27% are less optimistic – leaving a net 4% less optimistic. In the previous quarterly survey a balance of 5% was more optimistic. The latest survey shows that a net 33% of firms have slimmer order books than normal, and 16% have larger stocks of finished goods than needed to meet expected demand.
Looking ahead, 10% of these businesses expect their output will be lower in the next three months than in the previous quarter, although 13% predict an increase in orders. Manufacturing costs are forecast to rise by 44% of businesses, while just 17% intend to raise their factory gate prices.
The picture among furniture manufacturers is even less bright, although it has improved since the previous poll. A balance of 22% of firms is now less optimistic than three months ago, but this is an improvement on the 44% of pessimists in the previous poll.
A net 23% of firms report weaker order books than normal, and 11% have smaller stocks of finished products than are needed for expected sales. A balance of 6% predicts an increase in new orders in the coming months. Manufacturing costs are forecast to rise by 23%, and price hikes are planned by 22%.
Official estimates of wood and wood product input and output prices in October suggest annual increases of 2.9% and 2.8% respectively. Shoppers paid an average 1.4% more for furniture in October than 12 months earlier, compared with an annual increase of 1.7% in September.
A new survey from Experian, the credit reference agency, reveals that the ‘feel-good factor’ has drained away from consumers, due to higher interest rates and fuel costs, and the cooling housing market. The indications are that big-ticket items, such as furniture and household appliances, will come under increased pressure over the coming year as fewer people move home.
The CBI says that retail sales picked up in October, although there was a decline in the underlying trend rate of growth. Sales volumes expanded for a balance of 69% of furniture and carpet outlets, up from 32% in September. The British Retail Consortium says demand for fitted kitchen, bathroom and bedroom furniture met expectations in October, but sales of smaller items of furniture were more buoyant.
The latest from the Halifax on the cooling housing market indicates that prices are falling at their fastest rate for four years. Further, the Bank of England says mortgage lending fell to £7.7bn in September from £8.4bn in August, and loan approvals fell by over 6% in September to a level 32% lower than at the end of last year.
Nevertheless on the nation’s construction sites work is still booming, despite a dip in optimism to the lowest level in three years in October as activity began to level off. The Purchasing Managers’ index remained well above the no-change mark of 50, at 55. But this compares with 56.8 in September, and reflects an easing of the new order index to 57.3 in October from 60.5 the previous month.
The National Institute of Economic and Social Research estimates that construction output was unchanged during the quarter to October, and was 1.3% higher than in the same quarter last year. In the year to September growth had risen by 2%.
