The UK economy is moving in a more positive direction, but the window sector should be prepared for construction and home improvement markets to take a little time to catch up.
The economy returned to growth at the start of this year with the fastest quarterly rise since 2021. Inflation is down to 2.2%, which although above the Bank of England’s 2% target, is in line with its forecasts and we’ve seen a small cut to the base rate, which came down to 5% in the summer.
According to the property website Rightmove, the first interest rate cut in more than three years and greater political certainty after July 4’s election also boosted activity, in the housing market.
Halifax has also reported that year-on-year, house prices saw 4.7% growth in September, the fastest pace of growth since November 2022. The UK’s largest mortgage lender said the average price hit £293,399 in September, just short of the record £293,507 reached in June 2022.
The latest Royal Institution of Chartered Surveyors (RICS) Residential Market Survey also indicates that the UK housing market continues to pick up. The September 2024 survey found that demand, sales, and new listings had all returned to growth, while sentiment related overall national house price growth for the first time since October 2022. The outlook also looks broadly positive.
Overall demand from buyers recorded a +14% result (net balance), the third month in a row indicating growth. Sales sentiment also saw a rise, although more marginal (+5% net balance).
Analysts are adjusting expectations based on general economic positivity and the arrival of base rate cuts. Capital Economics’ UK team suggests prices will remain flat for the rest of this year but rise 5 per cent in 2025 and another 4 per cent in 2026.
Meanwhile the latest GFK Consumer Confidence Report found that hopes for our personal financial situation for the coming year are heading back towards positive territory.
This, GFK points out, is a metric that is key to indicating the future financial position of households. This renewed optimism can also be seen in the similar turnaround consumer’s general economic outlook for the next 12 months, and the eight-point advance in major purchase intentions.
So why is it that the home improvement market remains, well, sluggish?
The answer to that is the potential timing of a second cut in the base rate. At the start of this year analysts had forecasts two cuts by the end of summer, possibly by as much as 1%. The modest and single cut of 0.25% that we saw at the start of August sent a positive in that it hints of things to come – a second cut is forecast for November – but has not been enough to encourage homeowners to spend.
Speculation about the autumn budget has/had, also had an impact. This includes increases in capital gains tax, wealth tax and inheritance tax. Higher taxes are rarely good for business but for homeowners who are still only just beginning to feel the benefits of lower inflation, speculation about tax increase has had a just as sobering effect.
While trading conditions have eased a little in September and October, these underlying economic conditions have delayed a meaningful increase in demand in home improvement, and so close to the end of the year, into 2025.
The nadir in the housing market has also impacted new build this year. Savills suggests new homes completions could fall to just 160,000 in 2024/5 – significantly off the Government’s 300,000 home a year target.
The product of a combination of lower demand from new homes buyers and reduced capacity to deliver affordable housing, alongside a dramatic collapse in the number of planning consents, it’s made the imbalance between supply and demand for new homes even more acute.
More positively, improving economic conditions and the Government’s ambition to tackle the planning system head on and deliver new homes, is forecast to translate into a return to growth of 5.0% next year.
This means that while the tail end of this year may remain nothing to write home about, prospects in 2025 are likely to improve.
That’s good news all round but I would encourage installers to consider their supply chain. Have your suppliers continued to invest in their capability and product offer?
We have continued our multi-million-pound investment programme with the addition of a new 25,000 sq ft of space and restructuring of our pre-existing facility.
With our continuing growth we recognise that it’s vital that we invest in our infrastructure and our product offer to guarantee service and quality to our customers, so that they’re primed for future demand.
Some installers are going to find out next year that their pre-existing suppliers may not be.
