Confidence among Britain’s furniture manufacturers is on a gently improving trend, but consumers have become more wary of making big-ticket purchases in the present climate of low income growth.

A CBI survey of the nation’s furniture manufacturers, covering the three months to April, reveals that confidence about the general business situation was judged to be stronger than three months earlier by 21% of firms, but weaker by 17%. The resulting balance of the 4% who feel optimistic compares with a balance of 12% who felt pessimistic at the time of the previous quarterly poll. Optimists outweighed pessimists by 7% in the spring 2006 survey.

Some 39% of firms say they are working below capacity, compared with 52% in January and 70% a year ago. A balance of just 10% report order books lower than normal; in the previous survey 31% claimed below-normal order books, and a year ago the figure was 47%. A fifth of firms expect the volume of deliveries to the domestic market to rise over the coming three months, although only marginal growth in export business is expected.

The CBI survey also reveals that a balance of 29% of UK furniture makers expect their costs to rise during the coming months (down from 69% at the beginning of the year). But 61% predict that they will be able to push through price increases to home market buyers; in January 50% had expected to hike their prices but in reality only 33% achieved increases.

Domestic-market customers who responded to Nationwide Building Society’s survey in May were upbeat about the economy but have become sharply less attracted to spending on major purchases. This reflects an increasingly pessimistic view about future income.

However, the value of domestic furniture and furnishing sales in the fourth quarter of 2006 was 16% higher than in the third quarter, and was up 3.4% annually, according to official estimates. In the whole of 2006 the value of sales was 3.5% higher than a year before, at £13.97bn. Without the effect of price changes, the volume of spending last year is estimated to have been 1.2% higher than in 2005. Fourth-quarter 2006 volume sales were just 0.1% up on the same period a year earlier, but were down 1% compared with the third quarter of 2006.

&#8220The sooner the necessary slowdown in consumer spending feeds through to the inflation outlook, the lower the peak in interest rates will probably be”

Retail sales

Meanwhile, officials estimate the value of furniture retail sales in May was 4% higher than 12 months earlier, compared with a year-on-year decline of 2% in April. Without the effect of price changes, there appears to have been no change in year-on-year volumes in May, following a drop of 5% in the year to April.

The retail price of furniture sold to consumers rose by 2.5% in May, and by 5.8% annually – up from 4.8% in April. Further back in the supply chain UK manufacturers’ prices of bedroom, dining- and living-room furniture rose by 2.1% in the year to May, and kitchen furniture prices were 3.3% higher. The cost of wooden-framed seats fell by 0.4%, but wooden office furniture prices were up 4.3%.

New overseas trade figures reveal that in the first quarter of this year furniture imports grew at an annual rate of 2.2%, while demand for UK-made furniture from overseas buyers expanded by 6.6% – with particularly strong exports of chairs and seats.

The outlook for furniture sales to UK consumers over the period 2007-2011, forecast by Oxford Economics, are for volatile yearly growth, ranging from a low of 1% in 2008 to a high of 6% in 2010. The average annual growth during the forecast period is 4% by value, and 2% by volume.

But the immediate outlook is uncertain. The increasing cost of borrowing over the last six months has failed to stem consumer demand or house price inflation, and an interest rate rise to 5.75% in either July or August appears likely at the time of this writing. The sooner the necessary slowdown in consumer spending feeds through to the inflation outlook, the lower the peak in interest rates will probably be.