UK consumers’ appetite for purchasing furniture moderated slightly during the second quarter but is expected to have improved on last year during 2006 as a whole. And the outlook is yet brighter, with additional increases in the value of sales in prospect for next year – admittedly, driven in part by higher prices.

Official estimates suggest that the value of domestic furniture and furnishing sales in the second quarter was 1.6% lower than in the first. But in the first half sales were 2% higher than a year earlier, with most of the growth occurring in the second quarter when demand was up 3.6%. However, without the effect of price changes, the seasonally-adjusted volume of spending in the first six months was marginally down on the same period in 2005.

The latest government figures on the value of furniture and lighting retail sales point to 6% annual growth during September, down from 8% in August; but again, without the effect of price changes, year-on-year volume growth is estimated to have been 3% in September and 7% the previous month.

The British Retail Consortium reports that in October furniture sales overall fell below their level a year earlier. Demand for sofas, beds, bedroom furniture and fitted kitchens was underpinned by promotions but for many retailers larger items continued to struggle in the face of consumer caution.

Volume demand

The CBI put figures on the situation in October, saying that over 50% of all furniture and carpet businesses suffered lower volume demand than a year earlier. In eight of the first 10 months of 2006 retailers reported lower year-on-year volumes.

On shop prices the BRC estimates that furniture fell for the second consecutive month in October and has now eased month-on-month for seven of the last 10 months, reflecting widespread promotional activity.

Official figures point to a drop of 3.2% in the retail price of furniture during October. This lowered the annual rate of increase to 2.6%, from 4.2% in the year to September.

At the factory gate, UK manufacturers’ prices of bedroom, dining- and living-room furniture rose by an average 3.5% in the year to September, while kitchen furniture was lower by a similar percentage. The average cost of wooden-framed seats rose by 2.8% and wooden shop furniture was up 2.4%. The price of wooden office furniture eased slightly at the annual rate.

Set against an overall weakening in manufacturing growth in September, British Furniture Manufacturers continue to experience mixed demand. Output of shop and office furniture was 9% lower than 12 months before, while production of chairs and seats fell by 4%. But kitchen furniture output was 2% higher than a year earlier, although output of other furniture dropped by 4%.

Overseas trade figures

Official overseas trade figures reveal that total imports of furniture in the first two quarters of 2006 expanded by 5% annually. The strongest yearly growth was in office and shop furniture, up nearly 16%, and kitchen furniture (14% higher). Imports of chairs and seats rose by 7% but other furniture imports were only 2% higher than a year ago.

Overseas demand for British-made furniture improved by almost 14% annually in the first half of this year. Shipments of office and shop furniture grew by 9%, chairs and seats rose by 24%, but kitchen furniture demand fell 7%, while exports of other furniture rose by 9%.

Looking to future UK consumer demand for furniture, Oxford Economic Forecasting predict annual volume growth of 2.1% next year, followed by an average increase of 2.3% in each of the next three years. In value terms this translates into an increase of 3.8% in 2007, and an average annual growth of 4.2% in the following years, on the assumption that average prices of furniture will rise by 1.8% each year.

But higher interest rates appear to have had little impact on the housing market and economists believe there is now a strong possibility of another inflation-cooling rise in borrowing costs in the new year. Further increases could be triggered by either high headline price rises over Christmas – leading to a jump in pay settlements next year – or continued rapid economic growth.