The UK economy remained surprisingly resilient in the third quarter, with above-trend annual growth of 3.3%. But as the impact of the credit crunch starts to bite, the news from two of the timber industry’s principal end-markets – housebuilding and furniture – is getting no better.
There is little reliable evidence yet that tighter lending conditions have significantly dented consumer or business confidence, although GfK’s September survey revealed a fall in the former and the CBI recorded the sharpest decline in sentiment among manufacturers in October since January 2006.
There are clear signs that housing activity is slowing and price increases are weakening. The Council of Mortgage Lenders reports that gross lending fell by 12% in September – more than double the usual seasonal decline – and new mortgage lending by banks slumped by 27% compared with September last year.
The new figures, which follow a warning from the International Monetary Fund that the UK is among the countries most at risk of a steep housing market downturn, underpin news from the Royal Institution of Chartered Surveyors of a drop in demand from potential buyers for the 10th successive month.
However, work on the nation’s building and construction sites continued to increase in September, says the Chartered Institute of Purchasing & Supply. Nonetheless, its index of activity fell to 60.3, from the previous month’s high of 64.8, where the 50.0 level indicates no change. The new orders index fell to 64.9 from 67.6 in August, and input price inflation slowed to a seven-month low despite higher timber prices.
In the high street consumers appear to be spending despite the pressure on credit. Overall annual retail sales growth hit an official three-year high of 6.3% in September, compared with 4.9% in August, but was described by one bank economist as the “last hurrah” for consumers rather than an acceleration of the underlying pace of growth.
In contrast, sales of furniture slowed sharply despite aggressive discounting. The Office for National Statistics says the volume of retail sales of furniture and lighting fell by 5% in the year to September, but was unchanged in the third quarter compared with a year earlier. The value of furniture sales rose annually by 3% in the third quarter, but was down 2% in the year to September.
The average price of furniture as measured by the Retail Price Index jumped by 5% during September, and was up 4.5% compared with September 2006 after rising by 3% annually in August. Inflation overall fell to 3.9% in September, down from 4.1% in August. Factory-gate prices rose by 2.7% in the year to September, and manufacturers’ material and fuel costs increased by 6.4% – the fastest rate in two years. But prices of wood and wood products rose by a yearly 10.3%, and input costs were 8.2% higher than in September last year.
The picture of output in the UK timber sector was mixed, with year-on-year declines in August for sawmilling and planing and for veneer sheets and plywood, but with strong growth in builders’ carpentry and joinery. Wooden containers and kitchen furniture also posted worthwhile annual growth rates.
New employment data show an extra 22,000 jobs were created in the three months to August, taking the total to its highest since records began in 1971, at 29.1 million, while the number claiming unemployment benefit in September fell for the 12th month. But the changes are relatively small and analysts warn that the labour market may be starting to peak ahead of a possible cooling next year.
The continued squeeze on real wages, reflected in the 3.7% rise in the average earnings index in the quarter to August, which was spurred by bonuses in the financial sector, could further dent consumer activity and lead to slower economic growth in the short and medium term.
