Britain’s economic growth appears to have slackened to its slowest pace for a year, with retailers and manufacturers suffering in the face of weakening confidence both in home and export markets.

The Iraqi war is contributing strongly to the downturn in consumer and business spending. However, experience of the aftermath of the September 11 attacks suggests that the post-hostilities psychological recovery will be relatively rapid.

In March retail sales in the UK fell year-on-year for the first time in four years, according to the CBI. Its survey reveals that only 28% of retailers reported higher volumes than in March last year, while 41% said they were down. The difference gives a balance of -13%, which is the lowest for more than a decade.

Furniture downturn

The downturn was worse among furniture outlets, with 18% reporting an annual decline in volumes. The outlook remains downbeat, with overall high street sales expected to remain unchanged in the year to April.

In contrast, wholesalers saw strong volume increases during the year to March, with much of the improvement coming from builders’ and electrical installation materials for the construction industry.

The building sector continues to enjoy robust growth, although the rate of expansion eased in March to the slowest for 15 months. The Chartered Institute of Purchasing and Supply‘s latest survey indicates that activity in civil engineering stagnated during the month, and was “subdued” in the commercial buildings sector. Nonetheless, housing recorded continued growth, although the rate of expansion was sharply slower than in February.

Official figures on new construction orders suggest that contracts placed for new private-sector housing soared in value by nearly a third against 12 months earlier, but new private commercial contracts rose by only 3%.

&#8220The Iraqi war is contributing strongly to the downturn in consumer and business spending. However, experience of the aftermath of the September 11 attacks suggests that the post-hostilities psychological recovery will be relatively rapid”

Housing market weakens

The housing market is clearly weakening in London and the south-east, with the fastest fall in prices for more than a decade reported in February by the Royal Institution of Chartered Surveyors. But it is more robust in the rest of the country and Halifax‘s house prices index shows a rise of 1.1% during March and an annual increase of 23.4%.

Further indications that the long-predicted collapse of the housing market has yet to materialise are provided by the Bank of England. It says the value of loans approved for house purchase in February was £21bn, the same as the monthly average for the three months to January.

Output of builders’ carpentry and joinery increased by 8.6% over the 12 months to February, according to government estimates, while sawmilling and planing expanded by 3.9% and kitchen furniture output rose 2%. But output of other furniture fell 7.6% and wooden containers dropped 23.8%.

Confidence sinks

Consumer confidence in the economic situation, measured by Martin Hamblin GfK, sank in March to the lowest level since the build-up to the Gulf war in September 1990. Nonetheless 32% of consumers believe that now is the right time to make major purchases. This is reflected in the 4% rise in private car registrations in March.

The foundations of consumer confidence remain relatively healthy. Average earnings rose at an annual rate of 3.6% in the three months to January, slightly down on the previous month as City bonuses were slashed. But consumers’ disposable income will be hit from this month by increases in national insurance contributions, while business will pay an extra £3.9bn this year. The CBI says that wage settlements in manufacturing averaged 2.7% in the three months to January, and 3% in services.

The number of people in work hit a record high of 27.8 million, helping to cut the unemployment rate from 5.2% to 5%. But the Recruitment & Employment Confederation warns that permanent and temporary staff placements fell in March, and new vacancies fell for the first time since last September.