Revised estimates which show construction output slumped by nearly 5% mean that economic activity declined more in the first quarter of the year than previously thought, despite a rebound in business investment and a second successive quarterly rise in household spending.
There are mixed signals from the timber industry’s markets, as building contractors have cut back on purchases of materials, reflecting a decline in new construction orders. But export demand for wood products has improved; the annual value of household spending on furniture has grown for the fifth consecutive quarter; and the outlook for consumer spending is improving.
Demand for construction materials fell in June for the first time in 18 months, according to the latest Markit/CIPS survey. Destocking by suppliers led to extended delivery times, as a fall in output and new orders saw the greatest drop in construction activity since February 2009.
Officials estimate that the volume of construction output fell 6.3% in May compared with a year earlier. Comparing the three months from March to May 2012 with the same three months a year ago, output decreased by 7.4%. New work fell 9.9% and repair and maintenance dropped 2.4%.
In the first quarter of the year new orders for private housing had declined in volume terms by 11%, and were down 14% year on year, according to ONS figures. Orders for private commercial work expanded by 28% and 8% at the quarterly and annual rates respectively, while orders for private industrial work surged by 58% and 49% respectively. The total volume of new construction orders rose 5% in the first quarter, but fell 4% annually, largely reflecting a plunge in new infrastructure contracts.
Activity in the domestic housing market fell to an eight-month low in June, reports the RICS.
Looking ahead, a new government scheme to make more and cheaper loans and mortgages available is designed to tackle rising borrowing costs and subdued lending.
The ONS estimates that foreign demand for British-made wood and wood products, other than furniture, rose nearly 5% quarter of 2012 and by 8% on a year earlier, while UK imports were up 5% on the quarter but stayed broadly flat at the yearly rate.
Overseas sales of UK furniture – at about one-fifth the value of imports – fell by a quarterly 1% but were up 10% on the first quarter of last year. Furniture imports increased 1% on both the quarterly and yearly measures.
The value of UK retail sales of furniture rose by 7.6% annually in June, and by a seasonally adjusted 11.5% annually. In the first quarter of 2012 household spending on furniture rose by 0.5% annually in adjusted volume terms – and increased in value for the fifth quarter in a row.
Now, analysts at Oxford Economics expect that as inflation continues to ease, wages will rise in real terms and support household purchasing power and a recovery in spending as consumer confidence improves.
The Ernst & Young ITEM Club forecasts a 0.4% rise in consumers’ disposable income in 2012, followed by a 1.5% rise next year. Actual spending is forecast to remain flat overall this year but a rise of 1.5% is on track for 2013.
