With foul weather forecast for the economy, and business and consumer confidence already on the wane, slower growth in demand lies ahead from the timber industry’s key markets – residential and commercial construction, and furniture.

The Bank of England now thinks that, even with anticipated interest rate cuts, yearly growth will fall from a third-quarter rate of 3.2%, to around 2%.

Adding to the gloom, the Bank predicts that inflation will stage a minor comeback. But at least it is not expecting a sharp downturn in the housing market, despite reports from the Royal Institution of Chartered Surveyors of a more pronounced slowdown reflected in lower house prices and fewer enquiries from new buyers.

Mortgage lending by banks – which accounts for about half of all lending to home buyers in the UK – was 37% lower in October than a year earlier, as they hoarded cash in the wake of the Northern Rock debacle.

Barratt, Britain’s third largest housebuilder, says that sales since July have been lower than a year ago but are still at 2005-6 levels, adding that the fundamentals of the market remain strong, with demand exceeding supply and the government committed to boosting the output of new housing.

Construction products sales

Sales of construction products increased during the third quarter, according to the Construction Products Association and the Construction Confederation. A joint report indicates that a balance of 57% of firms saw higher demand than a year earlier.

But an earlier CBI survey of building material manufacturers reveals that a balance of 25% are less optimistic about business prospects for the next three months, compared with 5% who were more optimistic at the time of the previous poll in July. Some 16% expect the volume of new orders to rise over the coming months, compared with 26% in the previous survey.

In a separate survey, 16% of UK makers of timber and wooden products, other than furniture, are now more pessimistic about business prospects than three months ago – against 6% who were more optimistic in July. Quizzed on new orders, a balance of 47% now predict lower volumes in the next quarter; in July, volumes had been expected to remain steady over the following three months.

Further back in the construction pipeline, official figures show that total new order volumes placed with contractors in the third quarter of 2007 were down 13% on the second quarter and fell by 2% year on year. New orders for private-sector housing dropped 13% compared with the previous quarter and by 9% annually. Order volumes for new commercial building projects were 18% lower in the third quarter but were unchanged on the same quarter last year.

Consumer demand

A dip in consumer demand on the high street during October was foreshadowed by the CBI and confirmed by government figures which show a fall of 0.1%, compared with a rise of 0.3% in September. The value of furniture sales dropped 6% at the yearly rate, after falling by 1% in the 12 months to both August and September. In volume terms, furniture sales dropped by 10% in the year to October.

At the same time the average shop price of domestic furniture rose by 4.3%. At the factory gate prices of furniture were up by around 3.2%, and makers’ material and fuel costs rose by 5.6%. But while higher petrol and food prices helped to send factory gate inflation as a whole up to 3.8% – its highest in nearly 12 years – average prices of wood and wood products jumped by 10.9%, up from 10.4% in September.

In recent years the UK economy has had a good run but, with the end of cheap credit on which it relied, it now faces new and sterner tests.