Official figures indicated that in the third quarter the economy was already heading towards a rate of growth slow enough to ensure that inflation remains contained. Now comes fresh evidence that retail sales and manufacturing weakened markedly in October, while construction growth faltered.

Last quarter’s slowdown in gross domestic product, from an annual 3.2% in the second quarter to 2.9%, is particularly significant because service industries which have previously turned in a buoyant performance shared in the decline in growth.

The Confederation of British Industry’s survey of high street activity and the Purchasing Managers’ Index, both confirm that the slowdown is continuing. Retailers reported zero annual growth in sales during October for the first time since January 1999 – and expectations for November are the weakest since May 1999. But Alastair Eperon, chairman of the CBI Distributive Trades Panel, points out that ‘when month-to-month fluctuations are put aside [in favour of a three-month average figure] sales growth seems to be moderating rather than grinding to a halt’.

For furniture retailers there was a further fall in year-on-year sales in October. Sectors reporting the strongest increases included DIY.

Growth in borrowing has also continued to slow, according to the Bank of England. New consumer credit was below previous months and the appetite for home loans also appears to be abating. In contrast, evidence from the latest EC poll of consumer confidence suggests a modest recovery following the depressing effect of September’s petrol crisis.

The manufacturing economy contracted during October for the first time in 18 months, despite marginal growth in order books. The fall in the seasonally adjusted PMI on manufacturing is attributed largely to an easing of supply bottlenecks following a sustained drop in the level of stock holdings.

An earlier CBI survey of manufacturing had found that manufacturers’ confidence was continuing to fall as the squeeze on margins hit employment and capital investment intentions. Unit manufacturing costs also rose for the first time since mid-1997, but are now expected to hold steady.

In contrast to the overall pessimism in manufacturing, furniture makers reported a substantially brighter outlook than in the previous quarterly poll. Furthermore they expect domestic demand to improve, although selling prices are still being eroded. Other timber and wood product manufacturers are more positive and have good expectations for the volume of domestic orders and deliveries; here too prospects for selling prices remain weak.

In the construction industry activity remains relatively healthy, according to the PMI, but the rapid growth seen earlier this year slowed during October to a 19-month low. All three sectors recorded expansion, with the commercial sector registering the strongest increase in activity. The pace of growth in civil engineering eased to its slowest rate for six months, while the growth of housebuilding activity eased for the seventh month in succession – to a slower pace than at any time since the sector began to recover in February 1999.

And while the rate of increase of new orders placed with contractors remains strong, it is the weakest for over 18 months, according to the PMI. Nevertheless, the strength of demand for inputs, combined with widespread shortages of raw materials, culminated in a lengthening of average lead-times for the 19th consecutive month. At the same time, cost inflation remained at an historically high level.

Construction Forecasting and Research predicts the industry will see its workload rise from an annual 0.9% last year to 2.5% from 2000-2002 – with a significant boost from repair and maintenance work. The most buoyant sector this year is forecast to be housing, with 5.5% annual growth.
Related Files
Graphic 6
Graphic 8
Graphic 4
Graphic 1
Graphic 3
Graphic 2
Graphic 5
Graphic 7