After the government downgraded its economic growth forecast for 2008 in October and the average forecast among City analysts fell to around 2%, it is too early to assess with certainty the impact on consumer purchases of housing-related goods, including furniture.
The Bank of England left interest on hold at 5.75% for the third month running while it took time out to gauge the implications of the credit squeeze for growth and inflation. But the view among many economists is that interest rates have now peaked, and that the timing of the first cut in the base rate has become the main uncertainty.
The CBI expects only a slight slowing in consumer spending growth in 2008, down to 2% from an expected 2.7% this year.
In its latest forecast, Oxford Economics says that assuming interest rates are lowered through 2008, and the housing market only pauses, spending on household goods should increase in real terms by 1.8% next year.
However, it warns that furniture is likely to under-perform the sector. The forecast is for outlays on furniture to rise in value by 1.7% next year, but by only 0.1% by volume. Over the period 2008-2011, annual growth in the volume of spending on furniture is forecast to average 1.9%, and to average 3.5% by value.
Meanwhile, despite the credit squeeze and higher interest rates, the Nationwide’s index of consumer confidence rose by 5 points in September, to its highest since May. The sub-index, which measures the number of people who think that now is a good time to spend on furniture and other household goods, rose from 39% to 41%.
According to the latest CBI distributive trades survey, made between August 30 and September 19, the volume of sales by furniture and carpet retailers was higher than 12 months earlier for a balance of 56% of businesses. This compares with a figure of 46% recorded the previous month.
The latest official estimates indicate that the volume of sales of furniture and lighting eased by 2% in the year to August, while the value of sales was unchanged on 12 months earlier.
Government figures on the value of domestic furniture and furnishing sales in the second quarter of 2007 indicate that demand was 1.1% higher than in the first quarter, and was up 4.6% annually. But without the effect of price changes, the volume of spending in the second quarter of this year is estimated to have been 2.9% lower than in the previous quarter and down 2.7% on the same time a year ago.
On the supply side, a CBI survey of the nation’s furniture manufacturers, covering the three months to July, revealed that confidence about the general business situation was beginning to ebb. It was judged to be stronger than three months earlier by 12% of firms, but weaker by 37%. The resulting balance of 25% who felt pessimistic compares with a balance of 4% who felt optimistic at the time of the previous quarterly poll in April.
Some 69% of firms say they are working below capacity, compared with 39% in April. A balance of just 20% report order books lower than normal; in the previous survey 10% claimed below-normal order levels. Nearly a third of firms expect their volume of deliveries to the domestic market to fall over the coming three months and a similar decline is expected in export deliveries.
The CBI survey also reveals that a balance of 25% of UK furniture makers expect costs to rise during the coming months (down from 41% in April). But only 9% predict that they will be able to push through price increases to home market buyers.
New overseas trade figures show that in the second quarter of this year total furniture imports grew at an annual rate of just 2.2%, while demand for office and shop furniture dropped by 12.7%.
In contrast, sales of UK-made furniture to overseas buyers expanded by 13.1% – with exports of chairs and seats up 14.4%. Total exports of furniture in the second quarter were worth £284m, compared with imports valued at £1.035bn.
