Prices at the factory gate rose by an average of 0.3% between January and February, leaving them up 2.2% annually according to government estimates. These figures compare with a monthly rise in wood and wood product output prices of 1.9% and a sharp yearly increase of 7.5%. The industry’s raw material and fuel costs rose 4.6% annually, in contrast to an economy-wide average fall of 1.1%.

Meanwhile there is evidence that higher interest rates have started to slow the housing market – a key factor in the Bank of England’s assessment of inflationary pressures. Enquiries by new buyers fell for the third consecutive month in February, the Royal Institution of Chartered Surveyors says. Nonetheless Halifax reports that house prices hardened by 1.8% in February, to an annual rate of 9.9%, as a lack of properties for sale exerted inflationary pressure.

Activity in the construction industry continued to expand in February, with growth in the commercial construction sector showing the most marked increase, according to the Chartered Institute of Purchasing & Supply. Contractors remain optimistic about future market growth and new contract acquisitions, but report that suppliers’ delivery times are lengthening in reaction to an increase in purchasing activity.

New orders

Official data on new orders placed with contractors in the 12 months to January indicate an increase of 3% compared with the previous 12 months, but orders in the three months to January fell by 6% compared with the same period a year ago. In the latest three-month period orders dropped by 7%, with decreases in private and public housing, infrastructure and commercial orders offsetting increases in industrial orders.

New orders for private housing – a major user of timber and wood products – fell by 3% annually in the 12 months to January. They dropped by 4% between the two latest three-month periods, but rose by 5% in the three months to January compared with the same time a year earlier.

Growth in commercial development activity accelerated to a three-month high in February, according to data from Savills. “Private sector office development continues to be a major driver of the market and this looks likely to continue over the short term,” said Mat Oakley, head of Savills commercial research department.

Results of surveys by both the British Retail Consortium and the CBI suggest that retail sales are holding up despite higher borrowing costs and subdued earnings growth. The BRC’s evidence is that furniture sales in February were slightly below those of a year earlier. Modern ranges outperformed classic styles, “with beds and bedroom furniture leading the way”. Sales of fitted kitchens and bathrooms slowed as New Year promotions ended.

Furniture prices

The price consumers paid for furniture rose by 1.6% during February, according to official data. At the annual rate furniture price inflation bounced back to 3.3%, from 2.5% in January and 5.3% in December 2006. The overall retail price index climbed to 4.6% in February, from 4.2% the previous month.

On consumer spending prospects the CBI now forecasts growth of 2.6% in 2007, as a result of wage growth and lower inflation, and 2.4% next year

But the outlook for domestic furniture demand has been revised downwards in the latest quarterly forecast by Oxford Economics. In volume terms consumer spending on furniture is now expected to grow by a yearly average of just 1.4% between 2007 and 2011, with some annual growth in each year except in 2008 when spending is expected to fall by 1.1%. Outlays measured by value are set to climb by an average 3.7% in each year of the forecast period and reach £16.7bn in 2011.