Business was already resigned to the inevitable when the Bank of England took a harder line and stepped up the pace of interest rate rises this month.

The Engineering Employers Federation says that manufacturers accept the need for a rate hike to preserve economic stability in the longer run. The National Institute of Economic and Social Research is more forthright, arguing that the Bank should raise rates rapidly to reduce the risk of economic disruption later. But the CBI argues that the latest 0.25 point increase will do little to control house prices, which are driven mainly by lack of supply in the housing market, or the inflationary effect of wage increases in the public sector.

Manufacturing output

New official estimates, which indicate a surge in manufacturing output in April, removed the only major obstacle to the latest interest rate rise. Surveys had been pointing to a solid recovery for several months, but only now have government figures begun to close the gap between the two sets of data.

National Statistics says manufacturing grew by 0.9% in April, the largest monthly rise since August 2002, and annual growth accelerated from 0.6% in March to 1%. But output of wood and wood products was mixed. Sawmilling rose 1.2% on the month and by 4.1% annually, while veneer sheets and plywood fell 6.9% on the month yet rose by 14.5% over the year. Production of builders’ carpentry rose 8.1% in April and by 0.1% annually; kitchen furniture was up 1.2% over the year, but other furniture fell 3.7%.

In the high street, retail sales grew at the fastest rate for two years in May, according to the CBI. Demand for furniture increased year-on-year for a balance of 48% of retailers, compared with 54% in April. The British Retail Consortium estimates that like-for-like retail sales rose by 3.7% in the year to May, up from 1.9% the previous month, but furniture sales are reported as “mixed, but with some improvement in bedroom ranges”.

In housebuilding – the timber industry’s other big market – activity gathered further pace in May. The Chartered Institute of Purchasing and Supply index rose to 59.1, from 58.9 in April, where 50.0 is the divide between expansion and contraction. Orders placed for construction materials by purchasing staff rose sharply in May, to meet rising workloads, and some bottlenecks are reported together with lengthening delivery times.

Government figures show that factory gate prices of wood and wood products rose by 0.9% in May and by 4.2% over the latest 12-month period. Further back in the price pipeline wood product manufacturers’ material and fuel costs rose by 0.6% over the month and by 2.4% annually.

Housing orders

New orders for private-sector housebuilding rose 4% in the year to April, according to the Department of Trade and Industry. In the three months to April orders were up by 5% compared with the previous three months and by 13% compared with the same period a year before. In the public and housing association sector orders for new house building were up 14% in the year to April; in the latest three months orders rose 31%, and also increased by 31% compared with a year earlier.

New orders placed with contractors for commercial projects, such as shops and offices, rose by 51% between the two latest three-month periods to April and by 49% at the annual rate. Orders for industrial projects fell by 16% on the latest three months but were 7% higher than a year before.

The future of business and consumer spending on new buildings will depend to a large extent on the level to which borrowing costs rise. The financial markets currently expect the base rate to hit 5.75% by the end of next year, but an eventual move to 6% cannot be ruled out.