News from cebr

last updated: April 2004

It has been over a year since our last edition of news from cebr, and it has been a busy one. We’ve continued to conduct research and advise clients across the widest range of sectors - including broadband, insurance, building materials, railways, housing and commercial property, mobile telephony, the motor trade, personal finance, investment banking — and have tackled some of the thorniest business issues, including out-sourcing, the euro and the rise of far east manufacturing. We outline a small selection of our recent studies and
publications below.

Meanwhile, we have recruited Dominic Walley as our new managing economist. Whilst as a senior consultant at Steer Davies Gleeve, Dominic gained extensive experience in transport economics and forecasting. We’ve been working closely with David Coates CB, the recently retired chief economist from the department of trade and industry, on regional development and competitiveness studies. And, our chief executive, Douglas McWilliams, has been appointed as a non-executive director of The Marconi Corporation plc.

UK growth to equal or exceed long-run trend rate this year

Our latest forecasts, published in the March edition of Quarterly Business Forecasts, suggest the UK is heading for economic growth of at least 2.5 per cent this year. So, although the Chancellor’s Budget prediction of between 3 and 3½ per cent may turn out to be a little optimistic, 2004 should be a good year for UK plc, and it is likely that 2005, the election year, will follow suit. But, with growing structural imbalances — the housing market, consumers’ debt and the trade deficit, there is the risk of a hard landing in 2006. Meanwhile, Britain’s balance of payments deficit will move further up the economic agenda as we move from
being a net exporter of oil, as we have been for the last 25 years, to being a net importer. This alone will need to be offset by a devaluation in sterling of between 4 and 7 per cent by 2008.

Andrij Halushka, 020 7324 2872; Annual subscription to Quarterly Business Forecasts: £220 (4 issues)

Business-to-business sales to grow 50 per cent faster than GDP

With increased specialisation of companies and use of out-sourcing, business-to-business sales are now extremely important to the wider economy. But, due to lack of statistics, it is often under-estimated by commentators and policy-makers. Our new regular report, Business to business forecasts, attempts to plug this gap. Overall, ‘intermediate demand’ has been rising during the 1990s from 92 per cent of total GDP in 1992 to 105 per cent in 2000. After 2000, the
proportion declined, but we expect it to recover this year, and to reach 110 per cent by 2008. More interesting, the report uncovers the differing trends across business-to-business activity - from advertising through information technology services and legal practice to engineering consultancy.

Andrij Halushka, 020 7324 2872; Annual subscription to Business to Business Forecasts: £450 (4 issues)

Competitive broadband market could add £22 billion to GDP

High-speed internet has fast become a vital infrastructure and, as our study for the launch of the Broadband Industry Group (Energis, Freeserve, Tiscali and Brightview) shows, is already making a sizeable contribution to British business by improving efficiency and expanding markets. The future benefit to the economy of this technology could be as much as £22 billion if faster rates of take-up could be encouraged by keener pricing and ongoing innovation in
products, pricing, service and technology.

Dominic Walley, 020 7324 284; See: www.bigfuture.org/research.asp

Study prompts government review of bankruptcy legislation

Although the government should be commended for trying to encourage greater entrepreneurship, the recent Enterprise Act could have unintended harmful consequences. Our study for the Finance and Leasing Association used evidence from abroad, as well as an analysis of the impact of the 1986 Insolvency Act, to show that the new legislation’s relaxation of bankruptcy rules is likely to increase the number of bankruptcies. We quantified the knock-on effects for borrowers in terms of higher interest rates and reduced access to credit. The study helped persuade the government to promise an earlier review of the legislation.

Douglas McWilliams, 020 7324 2860

Don’t lose your car parking space

We have helped one of the largest commuter rail companies make the most of their car parks. These are a valuable resource which can encourage customer loyalty, help meet the varied needs of rail customers and, when there is spare capacity, generate additional revenues from non-rail users. We have analysed the demand and supply at our client’s stations and proposed pricing strategies to deliver maximum utilization and revenues whilst ensuring customer loyalty.

Dominic Walley, 020 7324 2841

Taking the hype out of the ‘boom or burst’ house price debate

With the 'boom or burst' debate hotting up, we have recently released our latest and most extensive assessment of the UK housing market. For many homeowners, housing has been a great investment over the past decade: the average house price more than doubled while the FTSE rose only 40 per cent. Can the balloon continue to rise, or will it burst? Many commentators have been warning of the prospects for a collapse in house prices. They have been wrong so far - but has it simply been postponed? Our report, Housing futures 2024, takes the hype out of the debate and looks systematically at the supply and demand of housing in each region of the UK, and our conclusions are quite different to the doom-mongers’.

Andrij Halushka, 020 7324 2872; Housing Futures 2024 report: £150 or £200 with quarterly updates

Do accountants have something to smile about?

We eagerly await the results of the Spring business confidence monitor from the Institute of Chartered Accountants in England and Wales and Alliance and Leicester Commercial Bank, which we helped develop and now compile. Published in February, the Winter edition of this quarterly survey of 1,000 accountants and finance professionals in British business highlighted a sharp upswing in confidence — with 50 per cent of respondents ‘slightly more confident’ or ‘much more confident’ of an improvement in business prospects over the coming 12 months, up from 35 per cent in autumn 2003. Can the accountants maintain their optimism this quarter?

Richard Greenwood, 020 7324 2840; See: www.icaew.co.uk

Contents of the average home worth nearly £42,000

As we fill our rooms with a greater number and variety of possessions, the inside of a typical family home is now worth £41,914, equivalent to the average house price in 1986. Sixty-seven per cent of UK households now contain two or more televisions and 44 per cent have a computer. With sharp falls in the prices of ‘white goods’ (20 per cent), audio-visual equipment (62 per cent), and leisure goods (16 per cent) over the last decade, what were once luxury items are now affordable to the majority. Developed to highlight the issues of under-insurance, our study into household contents provided a platform for a highly successful public relations campaign that generated significant media coverage for our client, More Th>n.

Laura Phaff , 020 7324 2864; See: ww8.investorrelations.co.uk/mediacentre/shownews.jsp?ref=17&year=2003&by=dated

Developing transport schemes to promote regeneration

Working with the urban regeneration company and the regional development agency, we have examined how transport affects the attractiveness of the Tees Valley as a place to do business. We have used our groundbreaking zonal economic activity model to better understand how improved accessibility encourages wider economic growth and prosperity. Our advice has covered both the impact of specific public transport schemes and the general principles that must govern the development of schemes if they are to maximise regeneration potential.

Dominic Walley, 020 7324 2841

Wasting an opportunity for local economic development

Major waste facilities have real impacts on the communities in which they are located. Lewes District Council asked us to review proposals for an ‘energy from waste’ incinerator in Newhaven. Research from the United States, and our own assessment of UK data and research, suggests that such facilities can negatively affect both property prices and industry mix. In presenting our evidence to the public inquiry into the East Sussex waste local plan, we argued that the need for the new facility needed to be weighed against the damage that could be done to the efforts to improve the economic prospects of one of southern England’s most deprived towns.

Mark Pragnell, 020 7324 2844; See: www.lewes.gov.uk/coun/planning/esxwaste.html