Government estimates indicate that the economy grew at its slowest rate for 12 years in the second quarter of this year. The news made it a foregone conclusion that official interest rates would be cut, to help stimulate growth, and the Bank of England duly obliged on August 4, reducing the base rate from 4.75% to 4.5%.

Economic prospects have also been boosted by a sharp fall in the exchange rate over the last three months. And exporters may be helped by a pick up in the important eurozone market, which is finally showing tentative signs of recovery.

But the latest CBI quarterly survey of timber and wood product industries, other than wooden furniture makers, shows confidence has slipped further since the first quarter of the year. A balance of 16% of firms is less optimistic about the business climate than they were three months ago, and a substantial 28% are working below capacity. Even so, a net 12% intend to boost job numbers in the next three months.

Order books

Order books are thinner than normal for a net 41%, compared with a small majority reporting orders at normal levels in the April poll. Four per cent expect output and deliveries to fall over the next three months, and almost one in five say their stocks of finished goods are more than sufficient to meet expected demand. Some 41% also plan to trim their stocks of raw materials and other bought-in products over the coming quarter. However, unit manufacturing costs are forecast to remain broadly unchanged and a small increase is expected in UK factory gate prices.

Meanwhile the major constraint on the development of e-commerce in the construction industry is “the culture of the industry”, according to 83% of firms polled in a survey for the Construction Products Association. Other results show that the industry sees reduced costs as a main advantage, followed by faster transactions, fewer errors, and less paperwork. Set up costs head the list of disadvantages followed by loss of personal contact, and retraining. Looking to 2010, the largest increase in the proportion of business using e-commerce is expected to be with suppliers, at 48%, compared to 30% with customers.

Housebuilding

Figures on housebuilding from the deputy prime minister’s office show the number of second quarter starts in England rose by 2% on the same time in 2004, and completions were 5% higher. The trend in home starts and completions climbed to 44,000 and 39,000 per quarter respectively, although the rising trend in starts slowed over the last two quarters.

Housebuilding activity was the strongest for six months in July, and was underpinned by an increase in new orders, according to the latest survey of purchasing managers. Construction of commercial premises was the strongest sector, while infrastructure activity faded to only a marginal rate of increase.

Supply-side bottlenecks reflected vendors’ efforts to meet demand, as purchases of construction materials increased and many delivery schedules were missed. Total output of builders’ carpentry and joinery dropped by nearly 2% in June and was 6% lower than in June 2004, official estimates show.

Data from Experian on company health shows that, in construction, the number of limited businesses which went bust in the first six months of 2005 was up 4%, but failures among building materials suppliers fell by 11%.

Cash flow among construction businesses fell by 0.5% in the year to the second quarter, according to credit insurer Euler Hermes. Construction companies again experienced the strongest rise in payment delays of any sector in the second quarter. Distribution companies were hit by a sharp decline in profitability in the second quarter, reflecting heavy price discounting in the face of sluggish demand.

Furniture sales

In the high street, the CBI reports that a balance of 92% of furniture retailers achieved lower sales volume in July than a year earlier – a continuation of the erosion of growth which began early in 2005.

And don’t expect consumer outlays, or the once-robust housing market, to be restored by August’s interest rate cut in the short term. At least one more reduction will probably be needed to drive private-sector spending forward. In the meantime, growth will depend strongly on government spending.