Strong UK housing and retail spending figures for last month were undermined by fresh signs that the manufacturing sector has weakened, and indications of an emerging slowdown in the eurozone economy.
Earlier figures had confirmed that a rise in consumer spending helped the British economy to grow between April and June at the fastest rate for two years, at an annual rate of 2.6%. Expenditure rose by 1% in the second quarter, up from 0.3% in the previous three months. But most of the increase was on electronic goods, household services, clothing, and recreation – and hence of little direct benefit to the timber industry.
The latest official figures point to a 3% rise in the volume of furniture sales in the year to July 2006, and an increase of 2% in value terms, reflecting the discounting which helped drive business.
A CBI survey reveals that in August total retail sales grew at the fastest rate since December 2004, as consumers shrugged off the month’s unexpected interest rate hike. The poll also provided important evidence of a turnaround in demand for furniture during August; although only 1% of retailers reported higher volumes than 12 months earlier, this contrasts with 50% reporting a downturn in the year to July.
Looking at future prospects for domestic furniture sales, Oxford Economic Forecasting expect volumes to expand by 2% in 2007, and by around 1% annually in each of the two following years. By value, furniture sales are forecast to grow by 4.7% next year, followed by annual increases of nearly 3% in 2008 and in 2009.
In the short term, pointers show increased concern among consumers about the general economic situation. Research group GfK NOP found in a survey for the European Commission that overall confidence among British consumers fell by four points in August. This took the underlying trend down to its lowest level since January 1998.
Despite the downturn in consumer confidence and the interest rate rise, house prices rose sharply in August. According to the Nationwide Building Society annual house price inflation lifted to 6.6%, the highest since April last year. Further evidence of the strength of housing demand came from the Bank of England, which says the number of mortgages approved for home purchase in July was the largest for six months.
On the supply side, orders for new housing placed with contractors in the three months to June were up 8% on the previous quarter, but 7% lower than at the same time in 2005. The total volume of new construction orders placed in the second quarter of this year rose by 4%, and was 6% higher than in the corresponding quarter of 2005.
Total construction output this year is set to grow by almost 3%, in contrast to 2005 when a fall in public capital spending brought 11 years of expansion to an end. According to economic forecaster Experian, an upturn in commercial construction activity and a pick-up in infrastructure projects will drive the recovery this year.
Meanwhile, in the first week of this month, sterling reached its highest level for two years on a trade-weighted basis, and its best level against the euro for some nine months, bolstered by expectations that UK interest rates could rise again this year.
