UK wood and timber product manufacturers surveyed last month shared only partly the rise in optimism found among the nation’s industrialists overall. Taken ahead of the widely expected hoist in the interest base rate to 5.5% on May 10, the poll may well foreshadow even less cheer ahead.
According to the CBI’s latest survey of industry, just 10% of timber and wooden product makers, not including those in the furniture sector, are more optimistic about the general business situation than they were three months ago. This compares with an average of 16% across the whole of manufacturing.
Growth in the timber industry’s total order books is expected to increase over the coming three months by a scant 3% of survey respondents, while the volume of output is expected to decline by a similar percentage, and nearly one in two say they are working below capacity. Reflecting this sombre assessment, 26% plan to cut their outlays on buildings and 8% will reduce investment in plant and machinery. Payrolls will be boosted by 4% of employers over the next three months, down from a figure of 11% three months earlier.
Unit cost increases
Helping to alleviate the downbeat mood slightly, the Pace of unit cost increases is expected to ease over the coming months, but nonetheless more than half of firms forecast a rise compared with the last three months. Furthermore, the price at which domestic orders are booked is expected to firm up – by about a third of those polled.
The latest official estimates of manufacturing output paint a rather brighter picture, with healthy year-on-year gains in March for sawmilling, builders’ carpentry and joinery, and wooden container output. Despite the difficulty reported by furniture makers in obtaining some raw materials, such as birch plywood and hardboard, output of kitchen furniture was up by a robust 4.5%.
In the high street, a warm Easter boosted sales, and the British Retail Consortium estimates that April sales volumes were 4.7% higher overall than in the same month last year, down from 6.2% in March. But demand for furniture failed to follow the trend and purchases are described as dropping back below year-earlier levels “after two months of flattish sales”.
April’s UK consumer confidence indicator, compiled by GfK NOP for the European Commission, improved from -8 to -6, although this is low in historical terms. The measure of consumers’ attitude to making major purchases showed a more dramatic gain, increasing from +2 to +6, but the latest score is five points lower than in April 2006.
Office retail price index
The official retail price index for April shows annual inflation at 3.6%, down from 3.9% in March. Prices of furniture eased to an annual increase of 4.8%, from 8.3% the previous month. But the BRC index of shop prices suggests an overall annual increase of only 0.8%, and indicates that furniture prices rose just 0.4% – the same as in March.
On the nation’s building sites construction output continued to grow during the first three months of this year and, say the Construction Products Association and the Construction Confederation, “this confirms industry forecasts of an acceleration in growth over the course of 2007”.
Purchasing managers in the construction industry indicate that overall activity rose in April to its highest for 41 months, led by the housing sector and by a sharp increase in new orders. But although house prices are still strong, mortgage lending slipped slightly during March, and new mortgage approvals slowed, suggesting that the seeds of a weaker housing market in the summer and autumn had already been sown before the latest interest rate rise.
Even so, another increase in the cost of borrowing before the present round of monetary tightening is completed remains likely, and the squeeze on both corporate and consumer pockets appears certain to continue for some time to come.
