The British economy is heading into 2002 the same way as it began last year: on two separate tracks. The housing market is buoyant and consumer demand in the high street is at a record high but manufacturing, with its heavy dependence on exports, looks set to continue in recession into the second half of this year.

Nonetheless, Britain could be the fastest growing of major industrialised countries for a second successive year, with annual growth of around 2%. The resilience owes much to the Bank of England‘s policy on interest rates, which are now at a 37-year low, and to higher levels of government spending.

Recent increases in unemployment have yet to make their mark on earnings or consumer confidence. Figures for November reveal the fastest growth in unemployment since the early 1990s recession, but average annual earnings growth was unchanged at 4.4% in October. In the wood and wood product industries earnings grew by an average annual 7.2% in the three months to October.

Consumers’ confidence in the economy and their own finances has bounced back almost to pre-September 11 levels.

More evidence of surging consumer optimism and confidence about future incomes comes from figures showing that demand for houses and flats, as indicated by market prices, rose strongly in December. The monthly rise of 2.9% in the Halifax index takes the annual growth rate to 15.5%. The recovery in mortgage applications and lending since September 11 further supports the view that the market has regained momentum.

On the supply side, official data shows that housebuilding is growing strongly. Work began on 11% more homes in the three months to November 2001 than at the same time a year before, while the increase in private sector building was 15%.

New statistics suggest that prospects for construction related timber and wood products are bright. The value of orders for private sector housing placed with contractors in the three months to November 2001 is 9.8% up on a year earlier. Total orders for new construction are 2.7% higher than a year earlier.

Looking ahead, Construction Forecasting and Research predicts that total annual growth in output by the construction industry, including repair work, will slow from 3.7% in 2001, to 2.3% both this year and next.

Additional evidence from the supply side of construction, from December’s Purchasing Managers’ Index of overall activity, points to an increasing pace of work, although the rate of expansion is well down on the levels seen from March 1999 to September 2001. Housing remained the strongest sector, while commercial activity grew significantly after the previous month’s near-stagnation. But growth in civil engineering work in December was ‘negligible’.

A welter of retail trading statements, supported by survey evidence, indicates a shopping frenzy either side of Christmas. A poll by the British Retail Consortium, covering both pre- and post-Christmas activity, points to ‘continued growth across the board’, with total sales up by over 8% on the year.

This is underlined by the CBI, which says year-on-year volume growth in the run-up to Christmas was the fastest since 1987. A balance of 35% of furniture retailers report growth in sales volumes in the year to December – up from 19% in November, and from 11% in December 2000.

But soaring consumer spending, and spiraling personal borrowing, have sparked new fears and a warning from the the Bank of England, that interest rates may have to rise if the boom fails to subside. However, it would be wrong to overstate the inflationary impact of heavy consumer spending in the face of strong price competition.

Retail price inflation in the year to December was just 0.7% but shop prices for furniture rose by 2.3% at the annual rate following an increase of 5.2% on the month. Prices of household goods as a whole rose 1.3% over the year.
Related Files
Manufacturing Output
Housing Starts and Completions
Wooden Furniture Ouput
Furniture Costs and Prices
Wood & Wood Product, Cost & Prices
New Construction Orders
Builders’ Carpentry & Joinery Wooden Contained Prices
Builders’ Joinery and Veneer Output