Economic growth slowed to a snail’s pace in the first three months of the year. It expanded by just 0.2%, to an annual rate of 2.3%. This led the Bank of England to lower its growth forecasts, while the Organisation for Economic Co-operation and Development reduced its projection for Britain’s GDP growth this year, to 2.1%.
Sluggish retail sales look set to squash hopes of a strong post-conflict rebound. And although consumer sentiment has brightened, the housing market appears to have ground almost to a halt. Nonetheless, construction activity is still growing and prospects for timber building products remain healthy.
Some consumers returned to the high street in April, spurred on by the Easter holidays and warmer weather, and they spent in volumes last seen in November, says the CBI.
Furniture outlets saw only a marginal year-on-year increase, yet even this was an improvement after two months of negative growth. The outlook is for only modest growth in overall sales volumes in May, although retailers boosted their orders on suppliers, and wholesalers report the third successive month of annual sales growth.
The British Retail Consortium observes that like-for-like sales in the three months to April rose marginally from 1.6% in March to 1.7%, and from 4.3% to 4.4% for total sales. Demand for garden products and seasonal items was strong in April, but furniture was not helped by the good weather, according to KPMG.
Confidence strengthens
Consumer confidence is rising again, as perceptions of the economic outlook over the next 12 months improved in April. The Martin Hamblin GfK index of consumer confidence was up five points, close to the level of December 2002. But consumers do not consider this a good time to make a major purchase.
In contrast, consumers are showing few signs of moderating their appetite for adding to their debt burden. But the number of loans approved for house purchase fell from 100,000 in February, to 98,000 in March – the smallest number since April 2001 – as the Bank of England warns that house price increases will halt over the coming year. The Royal Institution of Chartered Surveyors says the housing market is clearly slowing, and that prices will rise by only 10% this year compared with 25% in 2002.
Although the nationwide housing boom appears to be over, the market remains buoyant in the north, and Easter brought a strong increase in buying enquiries. But this is traditionally a popular time for house hunting and buyers remain cautious.
House prices
The average price for new homes which were started in the first quarter of 2003 rose 8% on the same time last year, the National House-Building Council estimates. It adds that the number of applications for registration of new home starts increased by 12% over the first quarter of last year.
Purchasing managers in the construction industry report sustained expansion in April as firms responded to strong increases in order books. However, the index which provides a snapshot of construction activity overall fell to 53.4, down from 53.8 in March to its lowest level since December 2001.
Total new construction orders placed in the 12 months to March rose 7% compared with the previous 12 months, although orders in the first quarter of 2003 were 1% lower than a year earlier. Official figures point to an 11% increase in private housing orders in the latest 12-month period. Orders for private commercial projects rose 7%, but private industrial contracts were down 6%.
Manufacturing is still in the doldrums. In the year to March output fell by 0.9%, and by 0.8% in the first quarter compared with a year earlier, according to National Statistics. Sterling’s 6% trade-weighted decline in value so far this year will make industry’s goods in Britain more competitive with imports, and in the longer term it will help exports. But that will depend on a recovery in global growth and demand, particularly in Europe.
