Recession expectations continue

The business plans of wood and wood product suppliers, and their customers from construction firms to furniture manufacturers, are being thrown into disarray as plummeting consumer confidence and tightening credit hit consumers both at home and in European export markets.

A survey by GfK NOP shows that confidence among British consumers is at its lowest since November 1990, while the measure of major purchase intentions is the weakest since the series began in 1983. “Consumer confidence about the economy over the next year, plus a reluctance to make major purchases, reflect the popular expectation of a recession,” said the company's Rachael Joy.

Data from the Bank of England reveal that the number of mortgages approved for house purchases in April was just 58,000, the lowest since figures were first reported in 1993. Earlier warnings of a drop in property sales of well over a third this year, issued by the Royal Institution of Chartered Surveyors and the Council of Mortgage Lenders, are already beginning to look too conservative. In May, sales were down 37% on last year, reports HM Revenue and Customs, despite a glut of homes for sale.

Buying activity

In the construction industry, purchasing managers say buying activity declined in May for the third month in a row, as order books slimmed and overall activity in the industry fell at its fastest rate on record. The downturn was led by the housing and commercial sectors.

The government’s housing adviser, Professor Stephen Nickell, argues that the official target of three million new homes by 2020, or 240,000 per year, won’t be met unless conditions change. Just over 200,000 were built in 2007 and the major housebuilders have cut back further this year.

House prices slowed for the eighth successive month in April, according to the Land Registry. The Nationwide index indicates that prices are down by 4.4%, amid comment in the Financial Times that “price adjustments occur only slowly and once they start to rise or fall they tend to keep going in the same direction for some time”.

On manufacturers’ prices, two surveys – from the Engineering Employers’ Federation and from the Chartered Institute of Purchasing and Supply – foreshadowed official statistics, with indications that UK factory gate prices are continuing to rise in response to higher input costs.

The yearly increase in factory gate prices of wood and wood products eased slightly in May, according to official data, but prices of manufactured goods overall jumped by 8.9%, while input costs rose by a massive 27.6% over the year. Both are the strongest increases since records began in 1986.

High street prices

High street prices jumped to a 10-year high in May and brought official pleas for wage restraint. But the chancellor’s call for realistic wage settlements was met by a benchmark-setting 14% settlement for fuel tanker drivers, heralding a summer of tough wage negotiations.

Evidence that surging inflation is making a big impact on the wider, European economy comes with news that retail sales in the key German market dropped by 1.7% in April, following a fall of 2.2% in March. In the UK, official figures for May indicate that despite mounting warnings of economic gloom ahead, consumers appear to be in denial – or are more resilient than economists think.

The short spell of warm weather tempted British shoppers to open their wallets wide, setting a new record monthly increase in spending, while increasing the risk of interest rate rises and recession. May’s “shop till we drop” mood mostly benefited food and clothes outlets. National Statistics say the volume of furniture sales plunged by 6% during the month, to take the annual rate of growth to –3%. In value terms, furniture sales were down 3% during the month, but were 0.7% higher over the year thanks to higher prices.