After falling sharply in 2005, consumer demand for furniture and furnishings began to increase in the first quarter of this year, but sales are forecast to remain poor until a slow recovery sets in during 2007.

Official figures reveal that sales of household furniture and furnishings fell by 2.5% last year in seasonally adjusted, volume terms. At current prices demand was up by 0.4%, but this compares with yearly increases of 5.4% and 8.1% in 2004 and 2003 respectively.

Official estimates suggest that the value of consumer purchases of furniture and furnishings rose by 0.9% annually in the first quarter of 2006. By volume, demand was up 0.3% in the first quarter, but 1.4% lower than in the same quarter last year.

Evidence from the June CBI survey of retailers indicates that annual volume growth resumed for 12% of furniture and carpet retailers, following a slump in demand during the two previous months. The latest government figures on the value of furniture and lighting sales point to 6% annual growth during May, up from 1% in April; remove the effect of price changes and year-on-year volume growth is estimated to have been flat in April, but up 4% in May.

British Furniture Manufacturers continue to experience mixed demand. Output of shop and office furniture in the three months to May was 14% higher than a year before, while production of chairs and seats fell by 1%. Kitchen furniture output was 9% higher than a year earlier, but output of other furniture dropped by 13%.

Overseas trade figures show imports of furniture in 2005 as a whole fell by 0.4%. In the first quarter of 2006 furniture imports were little changed compared with the previous quarter but were 2% higher than a year earlier. The strongest annual growth was in office and shop furniture, and kitchen furniture – up more than 15% – while imports of chairs and seats rose by 5%.

Export performance by British furniture manufacturers improved by almost 3% last year overall and by 15% annually in the first quarter of this year. Shipments of office and shop furniture, kitchen furniture, and chairs and seats all grew by around a fifth in the year to the first quarter.

Consumer confidence

The consumer confidence survey by GfK NOP for the European Commission rose marginally in June and is at a similar level to that of June 2005. Consumers have become more positive about making major purchases, with the index up three points – now seven points higher than at this time last year.

Information from the Chartered Institute of Purchasing & Supply about the home construction market, which provides an indicator of future demand for furniture and kitchen cabinetry, is that activity tumbled in June.

But in the commercial sector, property services company Savills reports a further expansion in activity, albeit the pace of growth was the weakest so far this year. London saw the highest level of activity since 2004, much of it in the office market, signalling the prospect of increased demand for office furniture.

Looking further ahead, the value of consumer spending on furniture in 2006 as a whole is projected by Oxford Economic Forecasting to rise by just 0.5%, before expanding by 3.6% and 3.8% in 2007 and 2008 respectively. In volume terms a fall of 3.1% is expected this year, before a rebound to growth of 1.3% and 1.8% in the two following years.

So far this year the retail price of furniture has risen by an average of 2.6% above the level of a year ago. Furniture manufacturers’ raw material and fuel costs rose by 3.4% in the year to May, although factory gate prices remained under pressure, with kitchen furniture down by nearly 3% year-on-year, and bedroom and living room furniture prices nearly 2% higher than 12 months earlier.

Inflation is coming increasingly to the fore as a cause for concern as pressure from commodity imports, and big upward revisions of national growth figures, strengthen the case for an economy-slowing interest rate rise.