The latest statistics point to some worrying trends: they reveal another sharp fall in manufacturing, accompanied by signs of overheating in the domestic economy. Even the superficially good news on increased high street spending has a sting in its tail, with evidence that consumers are growing wary of big ticket goods such as furniture.
Manufacturing – for long under pressure from sterling and the global slowdown – fell by a sharp 0.9% in April. In the latest three-month period output dropped by 1.1%. In the forest products industries, sales by sawmilling and planing firms fell at an annual rate of more than 6%, while output of veneer sheets and plywood was also down 6%. Kitchen and other furniture producers also experienced falling demand.
In contrast to the dismal picture in manufacturing, low mortgage rates, rising house prices and earnings continue to buoy the housing market. Purchasing managers report another significant expansion of activity in the housing, commercial and civil engineering sectors during May, although the pace of growth has eased to a three-month low.
However, official figures for the three months to April show that the number of private sector home starts was down 5% on the previous quarter. But new private sector housing orders placed with contractors rose by 10% between the two latest three-month periods.
Meanwhile, sales by builders merchants recovered in April, following a decline in March. The Builders Merchants Federation says that in the latest three months business improved at an annual rate of 3.2%, driven by a 7.7% increase in April.
Business in the high street is also booming. Retail sales volumes, adjusted for seasonal variations, rose by 6.4% in the 12 months to May, the fastest rate since July 1997. Sales by food stores from March to May were up in volume by 4.2% compared with a year ago, and non-food stores saw an 8.9% increase.
Analysts warn that there is growing resistance to discretionary purchases, such as furniture and consumer electronics. This is only partly explained by the slower housing market in the first quarter and may conceal the first portents of a future bust in consumer demand.
Although sales of DIY products remained strong during May, evidence from the Confederation of British Industry reveals only marginal annual growth in furniture sales. The British Retail Consortium survey confirms the lacklustre demand for furniture, electrical and electronic goods.
May also saw renewed worries about inflation. The cost of manufacturers’ raw material and fuel purchases jumped 4.7% over the year, albeit the underlying rate, which excludes prices paid by the food, drink and petroleum industries, increased by 2.2%. Input costs for wood and wood product manufacturers rose at a moderate year-on-year rate of 0.1%; at the factory gate, however, their products sold for an average 0.4% less than a year before.
The sharp rise in the cost of oil and of seasonal food prices, which was the impetus for the upturn in industry’s costs, also helped send underlying consumer price inflation from 2% in April to 2.4% in the year to May. This is the highest for two years and is just short of the government’s target of 2.5%. Furniture prices rose by an annual 1.4% in the year to May.
On top of these unexpected figures on price inflation, average annual earnings growth accelerated to 5.2% in the year to April – well above the 4.5% rate the Bank of England considers safe for future inflation. The rise reflected the largest pay increases in the public sector since the end of 1992, as well as faster private sector pay growth. Moreover, unemployment has dropped to the lowest level since 1975, taking the unemployment rate down to 5% and increasing pressure in the already tight labour market.
If there are certain phrases likely to send a shudder down the spine of any business planning its future strategy they must include ‘sagging output’, ‘booming consumer sales’, and ‘rising inflation’. Now all three have suddenly become appropriate descriptors of the British economy.
Related Files
Manufacturing output
Builders’ joinery and veneer output
Builders’ carpentry & joinery, wooden container prices
Wooden furniture output
Wood and wood product, costs & prices
Furniture costs & prices
Housing starts and completions
New construction orders
