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United Kingdom

Economic trend

After a sustained period of growth, forecasts on UK economic development are currently dominated by uncertainty over Brexit negotiations and the deal the UK will strike for future trade relations with the EU on its departure. The consensus among analysts and financial media commentators is that the Brexit vote has slowed UK economic growth relative to the rest of the EU. The fluctuation in sterling exchange rates it has triggered, notably of course against the dollar and euro, has made business planning and budgeting more uncertain, nowhere more so than the tropical timber import sector, where companies are ordering supplies many months or more in advance. It has also dented consumer and industry confidence, which in turn has hit capital and commercial property investment.

In the first quarter of 2018 UK GDP growth slipped to just 0.2%, with the effect of economic uncertainty compounded by severe winter weather, which hit construction activity in particular. In quarter two the figure rebounded to 0.6%, then in quarter three, despite the economy ‘flatlining’ in August, preliminary estimates from the influential National Institute for Economic and Social Research are that it rose again to 0.7%, leading to the organisation revising its GDP forecast for 2018 as a whole upwards to 1.5%. The International Monetary Fund, which earlier downgraded its 2018 UK GDP growth forecast to just 1.1%, is taking a more downbeat perspective.

Prospects for 2019, it is generally agreed, are mainly dependent on the nature of the UK’s EU departure. If it does leave without an agreed economic deal, when its trading relationship with former EU partners would be governed by World Trade Organisation rules, it is felt there would be a range of adverse economic consequences.

Standard & Poor’s ratings agency warned markets of possible consequences of a no-deal scenario, which included a potential credit rating downgrade, a rise in unemployment from the current all-time low of 4% to 7.4% by 2020, an uptick in inflation to 4.7% by mid-2019, a fall in house prices by 10% over two years, and in London office prices a slide of 20% over two to three years, a property crash as severe as that of 2008.

In the event of a relatively ‘friction-free’ EU trade deal, however, Pricewaterhouse Cooper paints a different economic scenario. It forecasts 2019 economic growth at 1.6%, continuing wage growth, house price increases remaining at current trends everywhere except the over-heated London market and modest bank interest rate rises.

Timber sector economic trend

After achieving a post-recession high of over 200,000 houses built in 2017, the UK timber sector’s leading customer, construction, experienced more varied fortunes in 2018. An increase in uncertainty over Brexit, combined with the harsh winter and collapse of the building contractor giant Carillion, saw overall construction output fall 1.6% in Q1. However, it then recovered with growth of 0.8% in Q2 and the upturn continued in Q3. The end result, predicts the Construction Products Association (CPA), will be ‘broadly flat’ activity for the year as a whole.

The CPA predicts public sector starts to remain static from 2018 to 2020, but those in the private sector to grow a further 2% a year in 2018 and 2019, before slipping back to 1% in 2020. Industrial construction output over the same period, led by warehousing and distribution hub growth, driven principally by expansion in online retail, is forecast to grow by 16.2%.

In a hardwood market report in the UK timber industry title Timber Trades Journal in August, leading importers and distributors reported continuing resilient business in key construction-related markets. The £11.38 billion UK furniture manufacturing, design, retail and repair sector reported competitive market conditions, but fairly robust order books, and demand was also good in the joinery sector, with companies reporting buoyant sales to both new build and the repair, refurbishment and improvement markets. Door and staircase manufacturers were also providing solid orders.

The widely reported difficulties in conventional UK retail, largely attributed to continuing rapid growth in online shopping, was reported to have impacted the shop fitting sector, a traditionally strong market for hardwood, including tropical. But this was offset by higher demand from more active hotel and leisure sectors.

Some importers quoted by the TTJ felt the greater political, economic and market uncertainty, plus currency fluctuation caused by the Brexit vote had also increased just-in-time ordering, with more customers buying timber little and often and holding minimal stock. Given long order lead times, this was a particular challenge for the tropical timber sector. Exchange rate volatility has also made pricing, budgeting and forward ordering more demanding.

Looking forward, there were fears over the potential for supply chain disruption due to general changes in customs and import handling procedures on Brexit. At the end of 2018, the timber sector faced the added unknown as to whether UK companies would have to undertake EUTR due diligence procedures on imports from the EU, and vice versa, once it leaves, and if there would continue to be mutual recognition of FLEGT licences.

Trade with VPA partner countries

The decision in quick succession of European hardwood specialists Wijma, Rougier and Cora to offload some of their African operations, including forest concessions, suggested to some UK companies that the old model of European companies supplying certified tropical hardwood to environmentally sensitive European markets is breaking down in the face of failure to secure a premium for the product and intensifying competition for timber from markets operating to limited or no environmental constraints, notably China.

Added to this seeming long-term structural change, tropical timber supply to the UK was also reported to be disrupted through 2017/18 by logistical problems, notably growing backlogs of timber at the under-invested port of Douala in Cameroon, plus extended and heavy rainy seasons in both Asia and Africa.

Vietnam, Indonesia and Malaysia are the biggest VPA country exporters to the UK, followed by Thailand, Cameroon, Congo Brazzaville and Côte d’Ivoire. Combined UK imports of wood and wood products (including furniture) from these countries totalled around €908 million in 2017, of which €303 million were accounted for by Vietnam, €263 million by Indonesia and €246 million by Malaysia. Cameroon exported wood products worth roughly €20 million Congo Republic €13 million and Ivory Coast around €7 million to the UK

Main wood products imported to the UK from VPA partner countries include wood furniture, joinery, paper, plywood, and sawn timber.

For more information and latest trade data go to the IMM Data Dashboard .