The slowdown in the housing market, accompanied by a squeeze on consumers’ disposable income, has continued to deter shoppers from big-ticket furniture purchases. But demand is expected to recover once home-buying picks up, and consumer spending already appears to have begun to turn the corner, while manufacturers are in more upbeat mood.

Consumer spending on furniture and furnishings fell in value by 3.6% in the second quarter of 2005, but was 2.8% higher than in the similar period a year earlier, according to official estimates. In the first quarter of 2005, spending had risen by 5.1% annually. In volume terms, and adjusted for seasonal variations, furniture sales grew by 1.4% annually in the second quarter, down from 3.4% in the first quarter. In the first half of 2005 sales volumes rose by 2.4% year-on-year.

Official monthly figures on furniture sales in the period July to October indicate an average annual volume decline of 9%, while the value of sales fell by an annual average of 7% over the same period. In the year to October the value and volume of sales fell by 7% and 8% respectively.

Sales volumes

Survey evidence from the CBI suggests that sales volumes were down on a year ago in November for 73% of furniture retailers. This follows a downturn for 64% of businesses in October. Some 53% expect sales to slip in the coming months, and 67% say the volume of orders they placed with suppliers fell in November. The British Retail Consortium says that furniture sales in November continued to be driven by promotions and heavy discounting, particularly for sofas, and fitted kitchens and bedrooms, at the expense of margins.

Property specialist King Sturge estimates that furniture retail sales declined in value by £348m in the first half of 2005, leading to a gross margin fall of £139m.

The latest government estimates suggest that consumer spending rose by 0.5% in the third quarter – up from 0.4% in the second quarter, and the strongest rate since the fourth quarter of 2004. And although the Bank of England expects spending to edge up, it will be below average for the next two years.

Prospects for spending on furniture in the short term remain lacklustre, but Verdict Research forecasts that the market, including floorcoverings, will grow by 18.5% in the period 2005 to 2010, compared with 15.9% in the previous five years.

Mixed fortunes

Meanwhile, UK furniture manufacturers have enjoyed mixed fortunes in recent months. Output of shop and office furniture fell by 0.7% in the third quarter and dropped by 11.8% annually; production of chairs rose by 0.4% on the quarter but slipped 3.9% on the year. Kitchen furniture output expanded by 0.3% in the third quarter and was 6.7% higher than a year earlier, and other furniture fell by 1% between the second and third quarters but was up by 7.1% year-on-year.

The latest snapshot of British furniture manufacturing, provided by the CBI, reveals a sharp improvement in mood. A balance of 19% of firms questioned in October said they were more optimistic about the general situation in the industry than they were three months before. In the previous survey, made in July, 44% said they were less optimistic.

On new order intake for the domestic market, 8% report a fall over the past quarter, compared with 37% reporting a drop in the three months to July. But only 2% expect the decline to continue over the next three months. And on output, 45% say this fell in the past three months, but only 3% expect a downturn in the coming months. Nonetheless, while domestic market prices are expected to remain flat, 28% of firms questioned predict that manufacturing costs will rise.

Official figures show that furniture manufacturers’ raw material and fuel costs rose by 3.1% in the year to October, but factory gate prices remained under pressure, falling by a similar percentage. High street furniture prices dropped by 1.6% in October. But at the yearly rate prices were up 2.6%, compared with 2.7% in September, and 7.9% three months earlier.