The abrupt end of the consumer boom helped push British economic growth down to its weakest in 12 years. According to revised government estimates, annual growth in the second quarter was just 1.5%, and the quarter-on-quarter increase was a limp 0.5%.
But the worst of the spending downturn may now be behind us, says Oxford Economic Forecasting. The consultants argue that the weak housing market is showing some signs of revival. However, they warn that high oil prices will reduce discretionary spending and unsettle consumer confidence, so the recovery is likely to be gradual.
Certainly the mood of consumers remains deflated. In fact, it is the gloomiest since October 2004, according to researcher Martin Hamblin GfK reporting on its poll for the European Commission. Optimism about the economy in the year ahead has waned and the trend in the climate for major purchases has continued its long-term decline.
In construction, the volume of orders for new work placed in the three months to August was 5% higher than in the same period last year. At the same time private housing orders rose by 16%, and public-sector housing and housing association orders rose by 5%. Orders for infrastructure work were up by 42% annually but commercial project orders were down by 20%. Orders for industrial buildings rose at a yearly rate of 1%.
Construction activity grows
And purchasing managers note further expansion in construction activity in September, driven mainly by growth in new orders. The commercial sector was the strongest performing, while housing and civil engineering saw only marginal increments.
In the nation’s shops, overall sales volumes fell for a balance of 24% of businesses in September – the sharpest decline in the 22-year history of the CBI monthly poll – and no let-up is in sight as retailers cut their orders to suppliers further. Businesses closely associated with the housing market were the worst affected. A balance of 98% of furniture retailers reported lower volumes than in September last year, and 54% of DIY and hardware outlets saw an annual fall in sales volumes.
The British Retail Consortium confirms that sales were difficult in September, with fitted furniture and beds particularly hard hit. It adds that discounts and promotions boosted sales for some outlets but margins suffered.
The retail price of furniture rose by 1.1% in September and by 2.7% compared with a year earlier – down from a 4.6% annual hike in August. The overall retail price index rose by 2.7% in the year to September.
Prices of goods leaving UK factories rose by 0.7% overall in September, the steepest monthly hike for five months, as manufacturers passed on higher costs. Wood and wood product manufacturers’ factory gate prices and input costs rose by 3.8% and 2.5% respectively in the year to September.
The cost of labour, as measured by the annual growth in average earnings, held steady in the three months to August at a level 4.2% higher than a year earlier and there is little evidence that high energy prices are yet impacting on wages. But the latest figures from the labour market reveal a rise of 8,200 in the numbers claiming unemployment benefit in September.
