The Bank of England had previously judged it preferable to risk lower growth than fuel an already unsustainable household debt burden and house price bubble. Its recent rate cut signals a worsening outlook for growth, prompting the Financial Times to describe the move as “more alarming than calming”.

And as the pundits line up to say the chancellor got his outlook wrong, a recent round-up of leading forecasters by The Economist suggests that the British economy will grow by 2.3% this year. The highly respected think-tank the National Institute of Economic and Social Research, forecasts growth of 2.2% in 2003 and 2.4% next year; it expects consumer spending increases will cool to 3.2% in 2003, down from 3.7% last year.

Meanwhile, officials estimate that GDP rose by 2.2% annually in the fourth quarter of last year, indicating growth in 2002 as a whole of around 1.7%. Evidence that the slowdown is continuing is provided by two new surveys.

The CBI distributive trades survey indicates that retail sales picked up slightly in January, as prices were slashed. But over the latest three months sales grew at their slowest rate since March 1999. Furniture outlets reported little change in annual volumes in January, with a balance of just 2% reporting an increase, compared with 43% in December and 40% in January 2002.

Further, the CBI says that orders placed by retailers with their suppliers were lower than at the same time a year earlier, for the first time in four years, as firms struggled to hold down excess stocks.

These signals come at a time when manufacturing is finding the going increasingly tough, leaving consumers to prop up the economy. The manufacturing purchasing managers’ index from the Chartered Institute of Purchasing and Supply (CIPS) fell to 48.6 in January, down from 49.3 in December and further below the 50.0 mark which separates growth from decline. Figures on factory output in the three months to December reveal an annual fall of 1.5%.

The performance of the timber industries over the same period was mixed: sawmilling and veneer-sheet output grew by 8.4% and 4.5% respectively, while carpentry and joinery rose 13.7%. Kitchen furniture output rose just 0.5%, but other furniture was up 4%.

Consumer confidence, measured by Martin Hamblin GfK, steadied in January after a dramatic fall in December. However, the index of spending intentions has fallen to its lowest level since December 1998. Some 35% of survey respondents expect to spend less on major purchases in the next 12 months compared with last year.

The Bank of England says that the three-month annualised growth in consumer credit fell to 14.1% in December, from 14.6% the previous month. But the housing market is still buoyant, although the number of loans approved for house purchase in December was 115,000, against an average of 121,000 in the quarter to November. The value of home loans approved was £21bn, £0.7bn less than the three-month average to November.

Annual house price growth is a strong 22% according to the Land Registry and while the supply of newly completed homes rose by 10% between the three months to December 2002 and a year earlier, there was no change in the number of homes started.

Indeed, house building activity apparently slowed in January, as the CIPS index fell to 59.7, from 60.3 in December. The overall construction-industry activity index fell from 55.0 in December to 54.2 in January – the second successive monthly slowdown.

But the longer-term outlook for the construction industry received a major boost with the government’s new plan to build 200,000 homes in London and the south-east over the next 15-20 years. The announcement was especially welcomed by the UK Timber Frame Association which said that the government’s support of off-site factory-engineered construction methods for these proposed new houses should give timber frame suppliers a key market advantage.