Most timber and wood product manufacturers, other than furniture makers, expect output to remain flat during the second quarter of this year, according to a CBI survey. Around 50% of respondents say volumes over the next three months will be the same as in the previous three, while around 25% expect an increase and a similar percentage expect a fall.

Sixty per cent of businesses say order books are normal or above normal, and more than three-quarters report that their stocks of finished goods are sufficient. Meanwhile high energy prices have pushed up unit manufacturing costs for more than one in every two firms, but the majority expect domestic selling prices to remain flat in the second quarter.

The latest official estimates show that output of kitchen and other furniture fell by 8% and 7% respectively in the year to December. Production of builders’ carpentry and joinery was down by 10% and veneer sheets and plywood fell 19%. In contrast, output by sawmills rose by 7% annually.

In construction, purchasing managers say January showed no sign of an upturn in activity in the declining housing sector or in infrastructure work, and new order intake was the weakest since November 2001.
Government figures indicate the volume of new construction orders rose by 7% in 2005, and orders in the fourth quarter were 12% higher than at the same time a year earlier. Private housing orders rose by 5% last year and orders for commercial projects were up 3%, while industrial orders jumped 23%.

The housing market has continued to strengthen since its low point last May. The Nationwide house price index rose from an annual rate of 1% in the second quarter of 2005, to 5.5% in January this year.
The January GfK NOP survey for the European Commission found overall confidence among British consumers up 6 points to -3, a significant increase on the gloomy end to 2005. It was driven by a sharp improvement in major purchase intentions and by more optimism about the economic outlook.

Nonetheless the latest CBI survey indicates that after the better than expected Christmas period consumer spending faltered in January. Demand for furniture, in volume terms, was lower than 12 months earlier for more than half of all outlets although there was an improvement on December.

The British Retail Consortium says total like-for-like sales rose by only 0.2% in the year to January, the weakest start to the year since its survey began in 1995. It reports some improvement in furniture sales, particularly on modern ranges, but they were discount-driven and at the expense of margins.
Official data on furniture sales reveal a rise in value of 3% in the year to December, with volumes up 1%. This compares with annual falls of 8% and 11% in value and volume terms respectively in the year to November.

Growth in total consumer spending will strengthen both this year and next, from only 1.8% in 2005, forecasts the National Institute of Economic and Social Research. But growth is expected to remain “much weaker” than the average of the past 10 years. Oxford Economic Forecasting predicts 2% growth this year, with retail sales expanding by 2.6%.

With positive signs from the housing market, but weak retail sales and manufacturing, a small cut in interest rates remains on the cards. But economists expect the Bank of England to await details of the latest pay round, and revised inflation and growth forecasts, before making a move.