Cuts announced by chancellor George Osborne on May 25 signal the harsh economic squeeze which lies ahead. Consumer confidence has been weakening for the last three months, declining to the lowest level since December, and is already reflected in downbeat signals from two of timber’s key end-markets – furniture and housing.

The May opinion poll by GfK/NOP confirms that consumers had become more pessimistic about prospects for the economy and for their financial situation and are increasingly wary of making major purchases.

Consumer sentiment is reflected in the CBI survey covering the first half of May, which reveals an unexpected drop in total retail sales. After three months of increases, year-on-year sales were down for a balance of 3% of furniture retailers. However, this figure compares favourably with May 2009, when 43% reported a yearly drop in sales.

The latest British Retail Consortium’s survey finds that overall sales revived in the sunnier second half of May but furniture remained the worst performing sector, “highlighting the reluctance of consumers to commit to big-ticket purchases while uncertainty over the future looms”.

Official figures for April indicate that the value of furniture sales rose by 3% annually in April, down from 8.7% the previous month, while in volume terms growth was up by just 0.7% from 5.1% in March.

A CBI survey of furniture makers in the spring found a balance of 43% more optimistic about the business outlook and 16% were expecting output to rise during the summer.

UK exports of furniture grew by 4% annually in the first quarter of 2010, according to new official estimates, while demand for imported furniture soared by 11%. At the same time, exports of wood and wood products other than furniture were up by 4% but imports topped 12%.

In housing, a growing consensus is emerging that the market remains sluggish at best, and may even be slowing.

In contrast to Nationwide’s report of strengthening prices in May, Halifax says prices dropped in both April and May, and have now fallen for three of the first five months of 2010. The reasons for this include concerns over unemployment, credit restrictions, and the increase in properties on the market which is unwinding the previous supply and demand imbalance.

Furthermore, new figures for April show that mortgage approvals crept just 2% higher, and remained well below the six-month average.

If demand for housing is weakening, dangers lurk for builders who may be moving ahead of the market. According to the Purchasing Managers’ Index for May, activity in the construction industry rose for the third successive month as new orders drove growth in the housebuilding sector to its strongest since August 2007. The data also signal a further rise in purchasing activity at construction companies.

Government housebuilding figures for England suggest that total new starts in the first quarter of 2010 were 62% above the trough reached in the corresponding quarter of last year, but 49% below their peak in the quarter ending March 2007.

The impending cuts in government spending and pressure on household budgets will soon make their mark and limit construction growth well into the medium term.