British business is ending 2002 much as it began – dogged by uncertainty about the future and in chronic imbalance. Manufacturing is stuck in the mire, while consumers remain in the driving seat.

Manufacturing output dropped in October to its lowest level for eight years, apart from the Jubilee holiday-related fall in June. Overall, production fell by 0.7% compared with September, and chalked up the third successive monthly decline, as production of cars and pharmaceuticals contracted sharply.

The picture in the timber industries is mixed. Sawmilling and wooden container production was down 12% and 14% respectively over the year, but builders’ carpentry and joinery and domestic furniture output rose by 9% and 8%.

The latest reports from the Chartered Institute of Purchasing and Supply confirm that the private service sector is expanding robustly, but manufacturing all but stag-nated in November. However, although the purchasing managers’ index refused to fall below the critical no-change mark of 50.0, it reached its lowest level for four months.

Export forecast

The outlook for the nation’s export-dependent manufacturers is clouded. American business seems dubious about the recovery there, and the euro area’s economy grew by only a sluggish annual 1.2% in the third quarter, while the unemployment rate crept up to 8.4% in October.

In the domestic economy, construction is maintaining its resilience, expanding at the fastest rate since April and with optimism at a seven-month high.

Government statisticians estimate that in housing, the strongest growing construction sector, work began on 15,300 new homes in October, and 15,500 were completed. Seasonally adjusted data suggests that housing starts in the three months to October rose by 2% compared with the same time last year, and the number of completions was up by a similar percentage.

But survey results show that rising demand for construction materials is feeding through in the form of higher average prices and lengthening delivery times from suppliers. Official figures indicate that input costs for suppliers of building materials rose 4.3% in the year to November, forewarning that pressure on factory gate prices may intensify.

Consumer spending in the high street during November continued to grow steadily and similar expansion is expected to continue in the build-up to Christmas, according to the CBI. Demand for furniture recovered during the month, with growth resuming after a small but significant downturn in the year to October. A balance of 8% of furniture retailers reported higher sales than a year ago, compared with 1% recording lower annual sales in October. In the previous three months the average balance of businesses reporting annual sales growth was a robust 35%.

Retail sales

Overall, retail sales volumes in November were well below those in the early months of the year, says the CBI. Nonetheless, 67% of retailers expect sales growth to continue over the coming months, but continued pressure on margins is forcing businesses to cut back on investment in buildings and equipment.

Sales by wholesalers are reported to have accelerated strongly in November, to the fastest rate for six months. And as demand has risen significantly above the average for the time of year, stocks have been run down.

Consumer spending

The main guide to the economy’s performance in early 2003 will be spending by consumers, and there is scant evidence they are losing heart. The overall picture of consumer confidence, as surveyed by Martin Hamblin GfK for the European Commission, changed little during November. But where the figures have moved, they are for the better. A poor climate for saving suggests that consumers will instead be spending – especially as they judge that prices are set to rise more slowly than over the past 12 months.

The economic fundamentals that support consumer confidence and outlays continue healthy as the New Year approaches: average earnings are rising at an annual 3.8%; the unemployment claimant count fell by 4,500 in October; and recruitment agencies report strengthening demand for staff.