In the shadow of new evidence that the economy grew at its slowest for three years in the first quarter of 2008, Britain’s manufacturers are caught in a double squeeze. A CBI survey shows that higher fuel and raw material costs pushed up unit costs in March at their fastest pace since 1990, forcing the strongest hikes in domestic and export prices in 13 years; at the same time orders and output deteriorated, and business optimism dipped to a five-year low.
The poll also reveals that among timber and wooden product manufacturers a balance of 52% was less optimistic about the business situation than three months ago. At the beginning of 2008 the comparable figure was 36%. Some 53% in the industry say current order books are thinner than normal, while 40% experienced a fall in orders, and 52% say output has dropped. Sixty per cent witnessed an increase in output costs over the last three months but 22% expect that domestic orders will be priced lower over the coming quarter.
Among building material manufacturers, 75% say costs have risen recently and 91% expect the rise to continue in the next three months. But only two-thirds plan to raise their prices on the home market.
Overseas trade
New figures on overseas trade figures indicate that exports of wood and wood products, other than furniture, fell by 3% in 2007, with sawn, planed and impregnated timber down 6%, veneer sheets and plywood 2% lower, builders’ carpentry and joinery down 6%. Total imports rose by 16%, with timber up 24% and both veneer sheets and plywood, and builders’ carpentry and joinery higher by 10%.
In the UK housing market, loans approved for home purchases in March totalled 64,000 – down from 72,000 in February and lower than the previous six-month average of 81,000. The Royal Institution of Chartered Surveyors reports that a continued fall in enquiries from prospective homebuyers has been accompanied by “a collapse in the number of completed transactions” over the last three months.
Looking at indicators of future timber product demand, new private home-building orders in the first quarter of 2008 fell in volume terms by 27% compared with the previous quarter and were down by 29% annually. Leading housebuilder Persimmon has postponed plans to start building on about 30 new sites until mortgage conditions improve, citing a 24% fall in sales since the beginning of the year. Bovis reported a 70% plunge in home reservations in the eight weeks to May compared with a year before, and a 30% drop in reservations so far this year, and Barratt said that the home market is weakening “significantly”.
Commercial construction
The volume of new orders placed for commercial construction projects – the largest construction category by volume and by value – was 15% lower in the first quarter than in the preceding three-month period and fell by 8% compared with the same quarter a year before. The total volume of orders for new work in the first quarter of 2008 was down 8% on the previous quarter and by a similar percentage at the yearly rate.
Confidence continued to fall among consumers in April, to its lowest since November 1992. And according to pollster GfK NOP, the climate for making major purchases fell to a level last seen in November 1990. Reflecting consumer gloom, year-on-year retail sales dropped markedly, says the CBI. Sales of big-ticket items, particularly those tied to the housing market, saw some of the biggest falls. Overall, a balance of one in four retailers reported lower volumes, although a balance of only 15% of furniture businesses saw a dip in demand.
And as the Bank of England indicates that a further cut in interest rates is unlikely for at least two years, the outlook for consumer spending and output growth points to tough times ahead on the nation’s building sites and high streets alike.
