The UK economy grew by 1.6% last year, according to revised official estimates. This is the slowest pace since 1992 when it was emerging from the last recession. However, it compares well with the euro-zone, where growth in 2002 is expected to have been around 0.8%. The CBI now forecasts economic growth of 2.2% this year and 2.4% in 2004.
Last year’s growth remained strongly dependent on consumers, who continued to spend more in the fourth quarter, increasing their outlays by 1% following a rise of 0.8% in the third quarter.
Danger sign
But fresh evidence of waning consumer confidence is a danger sign for the future of the economy. Pollster Martin Hamblin GfK says it plunged six points in February, following a rise of 1 point in January. The index now stands at -9, the lowest since autumn 1998 when jitters about economic turbulence in Asia affected sentiment.
The present fall in confidence is attributed to concerns over the threat of war in Iraq, and to a lesser extent to the state of the UK stock market. Households are more optimistic about their own finances than about the economy in general. Nonetheless, the number planning to make large purchases over the next 12 months – including furniture and other household equipment – has dropped sharply. Some 36% of those polled said they would be cutting spending on big items compared with the previous year.
The CBI distributive trades survey for February shows that retail sales barely grew, “confirming that the strong growth seen in 2002 is at an end”. Furniture outlets reported a sharp downturn in sales, with a balance of 21% of businesses reporting a year-on-year decline in volumes. This compares with 2% achieving volume growth in January.
Sales v falling prices
However, the CBI says that, overall, wholesalers’ volumes rose in the year to February, although sales came at the expense of falling prices and further cuts in employment. Nevertheless, wholesalers expect a modest improvement in the business over the next six months.
On the supply side, output of kitchen furniture by British manufacturers rose by 4.1% over the 12 months to January and increased by 1.5% between the two latest three-month periods. Production of other domestic furniture rose by 0.3% in the year to January but dropped 3.7% between the two latest quarters.
The latest official figures on the construction industry indicate that the total volume of new work last year was 11% higher than the previous year, and was 2% higher in the fourth quarter than in the third. Repair and maintenance work rose by 5% last year, and by 2% between the two final quarters.
Meanwhile, output of builders’ carpentry and joinery was unchanged in January but rose 12.5% in the year compared with 12 months earlier. Between the two latest quarters output increased by 2.8%, according to government estimates.
Housebuilding rises
Housebuilding activity apparently rose at its fastest rate for three months in February, with the CIPS index rising to 62.3, from 59.7 in January. The overall construction industry activity index rose from 54.2 in January to 54.9 in February. Nevertheless, rises in new orders slowed for the second successive month, and increased business uncertainty in the wider UK economy dented optimism in the construction industry.
Annual house price growth slowed for the fourth consecutive month in January, indicating that the boom is coming to an end, according to figures from the Royal Institution of Chartered Surveyors. House prices in February were just 0.4% up on the previous month, says mortgage lender Nationwide, taking the annual increase to 24.8% compared with 26.5% in January.
Furthermore, the Bank of England says 109,000 loans were approved for house purchase in January, compared with an average of 119,000 in the three months to December.
