After a faltering start to 2024, we are now beginning to see real signs that the worst of the economic conditions that have been hampering growth may be behind us.
One of the biggest factors impacting the economy over the past two years has been rampant inflation, which has now fallen back to just over 2%, having hit a peak of 11% in 2022 and averaged more than 8% last year.
From a pallets and packaging perspective, despite ongoing pressure on direct and indirect costs in 2023, the market experienced a weakening in commodity prices in line with overall conditions and market demand, reaching levels that in some instances were below cost.
Clearly, this was unsustainable, and the supply chain reacted by reducing capacity and surplus stocks to better align capacity with demand.
As a result, the trend for downward pressure on prices is beginning to reverse and according to the Timber Packaging & Pallet Confederation’s (TIMCON) latest pallet and packaging timber price survey for February, Homegrown pallet timber prices increased by 0.9%.
Meanwhile, the price of Imported KDHT material saw a very marginal rise in the first quarter of this year. This represents the most positive picture since the middle of 2022 and when aligned with recent developments seen in relation to rising paper prices, indicate that we have reached the bottom of the market and are moving towards a recovery.
The adverse weather across northern Europe has also driven a surprise price increase in wood prices in Germany for the first quarter of 2024, an upward trend that is expected to persist with wet weather impacting harvesting alongside an increase in demand.
Recent data from Timber Development UK is also showing signs of recovery in the market as import volume deficits continue to fall. Import volumes across the main timber and panel products during the first 10 months of 2023 were 1.5% lower than during the same period in 2022, which actually suggests a continued gradual improvement as the sector moved into 2024.
Overall timber imports rallied in 2023 to finish just 2% down on the previous 12 months, with certain product groups even outperforming 2022 levels.
Manufacturing output generally and new orders also returned to growth in March 2024 as domestic demand strengthened although it has since taken a small dip again in April.
The seasonally adjusted S&P Global UK Manufacturing Purchasing Managers Index rose to a 20-month high of 50.3 in March, up from 47.5 in February and over the neutral 50 mark for the first time since July 2022.
Three of the PMI sub-components – new orders, output, and supplier delivery times – were all consistent with improvement in overall operating conditions during March. However, it was not all good news as indices tracking employment contracted but the rate of contraction has eased significantly compared to July but the overall index did drop again below the 50 mark in April, potentially due in part to the disruption in the Red Sea in recent months.
There is certainly more confidence growing across the economy and we have seen indicators such as record highs on the FTSE and the chances of downward movement in interest rates improving with the inflation rate now back down to close to 2%.
After a technical recession in the UK in the second half of 2023, there may still be bumps in the road as the economy stages a recovery but with a General Election now looming in July and the possibility of an economic bounce that often follows the formation of a new government, there are undoubted reasons for optimism as we move forward into 2024.
