Helped by weak sterling, some furniture and other wood and wood products businesses are successfully turning to overseas markets for growth. But with the economy almost flatlining in the second quarter, compensating for weak UK demand with exports will pose a big challenge.

Official figures for the first quarter of 2011 show that exports of furniture rose 22% annually. Imports increased by only 1% over the same period, but they dwarfed exports by some £811m. Overseas sales of wood and wood products, apart from furniture, grew by 14%, to £82m, while imports rose by 9%, to £752m.

Meanwhile the value of household spending on furniture rose by 6% in the first quarter, to a level 4.1% higher than a year earlier. Remove the effect of higher prices, and volumes fell by 1% annually, as household disposable income dropped by 2.7% – the sharpest decline since 1977.

Furniture retail sales

From the high street, new official figures indicate that the value of furniture retail sales in the second quarter of 2011 was up 0.8% on a year earlier, as volumes dropped 2.5%. Anecdotal evidence from the British Retail Consortium suggests that discounts helped sales during the month, particularly of beds and bedroom furniture. However, garden furniture struggled, and kitchens and bathrooms continued to suffer from consumer caution.

Further back in the supply pipeline, production of UK furniture jumped by nearly 7% in May, to a level nearly 6% higher than 12 months earlier. In contrast, output of other wood and wood products dropped 5% annually. But manufacturers’ profits in both sectors remain under pressure as costs rise significantly faster than selling prices.

In the housing market, mortgage approvals increased marginally, to 45,940 in May from 45,447 in April. On house prices, the balance in the June RICS survey shows little change at -27, continuing to point to a sizable decline, as demand remained flat.

Housing output

Total output of new private and public housing rose 3% in May, and by 0.4% annually, according to official estimates; volumes were up 2.9% and 0.1% respectively. In the three months March to May new private housing output rose in 2.9%, while public sector housing was up 6.3%. Over the same period total new construction output rose by 0.3%, but repair and maintenance work eased by 0.3%.

In June, growth in the construction industry eased, according to the closely watched Markit/CIPS purchasing managers’ index of activity. This dipped to 53.6, from 54.0 in May; a reading above 50 indicates expansion. The downturn reflected a slower rise in new orders and continued weakness in housing. Business confidence fell to a six-month low, suggesting that companies are expecting growth to weaken further over the next year.

The latest forecast by the Construction Products Association points to a decline in construction lasting at least the next two years, followed by weak growth in 2013 ahead of a possible strong recovery in 2014.

Separately, Oxford Economics predicts that even in the medium term it is unlikely that the pace of consumer spending will return to levels seen before the boom ended in 2008.