Consumer confidence plunged to a 13-year low in February, according to pollsters GfK NOP. The decline reflects a raft of gloomy data, including the slowing housing market and rising costs. And consumers have become sharply more cautious about making major purchases, to an extent not seen since December 1990.
Alarm bells had been set ringing by Bank of England warnings that the dual dangers of slow growth and above-target inflation face business and consumers alike. The governor warned that house prices may not rise for three to four years, and said bluntly that consumers’ standard of living will fall in the face of higher fuel and food bills.
But wage inflation, which could easily get out of control and be costly to reverse, remains modest, according to the latest official data. Three-month average annual earnings growth to December eased to 3.8%, from 4% the previous month.
The number of people claiming unemployment benefit fell for the 16th consecutive month in December, to its lowest level since 1975, and the unemployment rate fell 0.2% to 5.2%, an indication that the labour market remains relatively tight.
High street sales
Official figures show that big price cuts helped high street sales to grow steadily overall in January, but were not able to stem a further decline in sales of furniture. These dropped by 5% year-on-year in volume terms, while the value of business at current prices was down by over 2%. Total household spending is estimated to have risen by just 0.2% in the fourth quarter, compared with 0.9% the previous quarter.
Estimates, compiled by the CBI, of total high street sales in February indicate that spending growth has came to an end, with a balance of 2% of businesses reporting a fall. At the same time sales annual volumes fell for 24% of furniture and carpet outlets. The British Retail Consortium says that year-on-year sales by furniture and floorcoverings businesses were the worst of any retail sector in February, following “a sharp fall back from January’s clearance gains” to show the largest decline since July 2005.
Growth in activity on the nation’s construction sites fell to a 20-month low in February. The CIPS/NTC purchasing manager’s index of new orders was the weakest in 25 months and revealed only a moderate rate of increase, but costs accelerated to a 19-month high.
Housing starts
Government figures suggest that the number of new homes started in England during the year to the fourth quarter of 2007 was 166,900 – down nearly 3% on the previous quarter and 6% fewer than a year earlier. Activity was strongest in the south-east and the east of England, and weakest in the Midlands and north-east. Output of new, private sector housing last year was 1% lower than in 2006, while housing repair work in the sector was 1% higher.
Housebuilder Barratt reports that forward sales are 7% lower than in February last year, but it has seen a rise in visitor and reservation numbers since the start of 2008. Persimmon says the number of reservations has fallen, and Bovis expects to sell significantly fewer houses this year than last, if present market conditions do not improve.
The Council of Mortgage Lenders says new loans for house buying – a good indicator of medium-term trends in sales – fell, to 50,300 in January. This is the lowest level of new home loans made for nine years, 11,700 fewer than in December, and less than half the number of mortgages taken out a few months ago.
