Amid continuing disorder in world financial markets, and a deteriorating US economy, the CBI has revised down its GDP growth forecast to 1.8% this year and 1.7% in 2009, while the International Monetary Fund expects even slower growth.

Household spending, which increased by 3% in 2007, is forecast by the CBI to expand by 2.8% in 2008, before strengthening to 3.2% next year. Total consumer spending had already begun to slow in the fourth quarter of 2007. Compared with the third quarter it rose by 1% in current prices, and by just 0.1% in volume terms. Fourth-quarter spending growth was 5% higher by value than a year before, after a 5.7% annual increase in the third quarter, while the volumes increased by 2.4% – down from 3.5%.

Outlays on furniture and furnishings rose by 2.8% at current prices in 2007 as a whole, but were 0.9% lower in the fourth quarter than at the same time in 2006, following a year-on-year annual rise of 4.5% in the third quarter of 2007.

High street demand

Official data on high street demand for furniture and lighting indicate an annual drop of 6% in value terms in February and a 9.2% fall in volume sales as consumers retrenched on non-essential spending. Overall retail sales rose strongly, driven by higher expenditure on food at the supermarkets.

Survey results from the CBI suggest that demand for furniture and carpets stabilised in March, with volumes unchanged on a year earlier, after nearly a quarter of outlets had reported a downturn the previous month.

But consumer demand is likely to continue sagging on news that house prices monitored by Halifax slumped by 2.5% during March, the worst monthly decline since 1992, and the IMF suggested that prices could fall by 10% in the coming year.

The gloomy outlook on house prices coincided with news from pollsters GfK NOP that consumer confidence fell to a 15-year low during March. The climate for major purchases has also worsened – to a level last seen in April 1995 – and which April’s cut in bank base rates to 5% is unlikely to improve significantly in the short term.

Furniture output

On the supply side, UK furniture makers increased output by a sharp 5.4% in the year to February, according to official data, while wood and wood product output rose by 3.2%.

Imports of furniture rose in total by 9% in 2007, as weaker sterling made the UK market tougher for overseas competitors. Imports of chairs and seats were up 4%, but other office and shop furniture imports were 5% lower than in 2006. Imports of kitchen furniture rose by 41% and those of other furniture were 13% up on 2006. At the same time UK furniture manufacturers’ shipments rose by a healthy 11%, with exports of chairs and seats up 16% and other office and shop furniture higher by 3%. Exports of kitchen furniture were unchanged on the level of 2006, but sales of other furniture to overseas customers rose 8%.

Reporting on the first quarter of 2008, the RICS says the slowing housing market has hit the construction industry, with workloads the lowest for more than a decade. The worst affected sector was private housing as growth turned negative for the first time since 1999 “as home builders react to challenging conditions in the market by reducing the number of new homes under construction”. Private commercial workloads also slowed abruptly as looming oversupply forced developers to shelve plans for future construction.

Confidence about future workloads weakened for the fifth consecutive quarter, according to the RICS. Businesses in South Wales were the most downbeat, with Scotland and the south-east the most positive.