Arriving in 2005: Super-jumbos, giant casinos and higher motoring costs

While 2004 saw the fastest global growth for three decades, the news was mixed for UK plc. Rising costs, wage growth and high-street competition put pressure on profits. While these trends are likely to continue, business will also be braced for a tax rise after a spring general election. Our business writers assess how each of the main sectors of the economy will fare
Click to follow
The Independent Online

Retailing:

Retailing:

The strong will get stronger

The Governor of the Bank of England may believe that consumers aren't bothered if house prices fall but someone should tell the shoppers. Something is keeping them away from the stores and it isn't the prices.

January's rash of trading statements will bring the first signs of who will emerge a high street winner and who won't. Just how big is Marks & Spencer's problem? Just how much do we rely on Tesco? Have housewives abandoned J Sainsbury? Is there life in WH Smith after all? The smart money is on the strong getting stronger - that's Next, Argos and some of the smaller fashion players like Ted Baker and Monsoon - and the weak, well, collapsing.

This year should reveal whether GUS opts to break itself up. It will also be make or break for Stuart Rose at M&S. He can't blame the former management forever. Few think Philip Green will return for a second stab, although it is a fool who underestimates the Bhs billionaire.

Talking of takeovers, expect more action from the private equity boys who are taking over the high street - of which the flip side is that 2005 might start to see some retailers return to the stock market instead of just leave. The ever active Baugur is unlikely to content itself with just acquiring Big Food Group. Its Mosaic group, home to Oasis and Karen Millen, could be floated off towards the tail end of the year.

Susie Mesure

Insurance:

A grim start to the year

This will be a grim month for insurance companies as they start to tally the cost of the Asian tsunami disaster. Early indications are that the financial implications will not be huge but shares of the world's leading insurers have fallen.

It will also be a month of change as the sale of insurers'products becomes regulated by the Financial Services Authority next Friday. Many companies are not prepared and have not applied for authorisation. A change in rules governing financial advice will also be something for insurers to grapple with, with the new regulations becoming mandatory in the summer.

The results of the Eliot Spitzer inquiry in the US into insurance brokers will be much anticipated in the general insurance sector this year. It is unclear what the implications will be for the UK market.

Equitable Life will meet its former auditors, Ernst & Young, in the High Court in April, while this month Legal & General will find out whether it has overturned the FSA's decision to fine it £1.1m for endowment mis-selling.

The Pensions Protection Fund will be launched in April, and almost certain to be landed with the liabilities of Turner & Newall soon after. The autumn will see the publication of Adair Turner's second report into the UK pensions crisis.

James Daley

Media:

Freeview will precipitate change

This year will witness a further change of the television industry's landscape, with Freeview continuing to sell prolifically with all the consequent implications for BSkyB, the BBC and other broadcasters.

Freeview is seen as a rival to BSkyB, but it also acts as a promoter of multichannel television; in certain circumstances it can prompt households to switch on to a paid-for BSkyB satellite service once they have tried the free digital alternative.

BskyB has three channels on Freeview, which it uses to promote Sky Sports and Sky Movies. By the end of the year, BSkyB hopes to have subscribers in eight million homes, - one third of all UK households.

The cable groups NTL and Telecast will struggle to compete with BSkyB until theymerge.

In the newspaper industry, there will be continued speculation over the future of Trinity Mirror, the group that owns the Mirror titles. The Daily Mirror's circulation will continue to slide and the City will push the group's board to at least sell off national titles, even if it is happy to continue supporting the more profitable and stable regional papers.

Radio, which is waiting for the result of competition inquiries into the proposed merger between Capital Radio and GWR, will see further consolidation and possibly a new owner for Kelvin MacKenzie's Wireless Group.

Saeed Shah

Motor Industry:

Prices driven higher

In terms of world car manufacturing, MG Rover barely registers on the Richter scale these days, producing fewer cars in a year than General Motors makes in a week. And yet, its fortunes continue to be a subject of fascination.

Very shortly, a new chapter, or perhaps the final chapter, in its history will be written. Its survival depends on securing a joint venture with the Chinese car maker SAIC, which will take effective control of the company and, in return, inject £1bn for model development. The deal is to be signed this month but the sceptics will believe it when they see it.

Elsewhere, the future of Fiat also hangs in the balance. The Italian car maker has gone to mediation in its dispute with GM over an agreement that Fiat says compels the American car maker to buy it.

As for the car industry generally, watch out for two trends. One is environmental and concerns the urgent search for hybrid technologies to reduce the pollution caused by cars. Expect more joint development initiatives of the kind signed by GM and DaimlerChrysler.

The other is legislative and concerns the ever-increasing volume of regulation with which car makers must contend. Expect higher prices as a result.

Michael Harrison

Economy:

House prices down, taxes up

For economic policymakers, 2005 threatens to be the year when their chickens come home to roost, especially in the case of the UK.

The housing market will be the key factor in determining whether interest rates change. The Bank of England forecasts some "modest" falls while the industry expects outcomes ranging from a 2 per cent annual fall to a 4 per cent rise; doomsters want a 15 per cent drop.

Gordon Brown will also have an eye on housing in case a fall triggers a collapse in consumer spending, undermining his growth forecasts. But the Chancellor's real worry in a likely election year is whether tax receipts will bounce back by enough to allow him to claim he has met his "golden rule".

The path of the dollar, which has fallen 15 per cent from its peak, will be a major issue. It might continue to decline gently, helping deflate the record US trade deficit, and causing the eurozone pain. Or it could plummet - whacking up US import prices and forcing the Federal Reserve to raise interest rates, which could trigger a recession. In that case the world would look to Britain, which has the chairmanship of the Group of Seven (G7), which twice intervened in the 1980s.

Tony Blair, who has made huge play of what he will achieve during the UK's G7 year, may be afraid of what he wished for.

Philip Thornton

Banking:

Small-scale acquisitions

It's steady as she goes in the UK banking world. Santander's £9.6bn takeover of Abbey National last year is likely to prove an anomaly as banks will steer clear of big, headline-grabbing deals.

Royal Bank of Scotland, owner of NatWest, and Barclays may well make small acquisitions in the US, while Lloyds could have its eye on little loan portfolios at home.

On the results front, recent statements suggest that while loan volumes are rising, margins are feeling a squeeze; but bad debts are under control and profits are rising. While consumer lending is likely to become tougher as the housing market eases, the banks should weather the slowdown without much difficulty - assuming the housing market will have a soft landing.

The introduction of new international accounting standards this year looks to be a storm in a teacup. The banks reckon the hit to profits and capital will be minimal, without changing underlying business performance. Generally described as a "presentational change", the standards could yet cause great confusion among watchers of the sector.

Julia Kollewe

Aerospace/defence:

Mergers in the air

This will be the year when the world gets its first glimpse of the biggest commercial airliner ever seen. The Airbus A380 super-jumbo is due to be unveiled in Toulouse this month and take its maiden flight at the Paris Airshow later in the year.

The 555-seat aircraft is Airbus's flagship programme and observers will be watching closely to see whether the company, in which BAE has a 20 per cent stake, can bring development costs under control after a warning that the $10.7bn (£5.6bn) budget could be exceeded by as much as $1.5bn.

There is a smaller dogfight developing between Airbus and Boeing in the medium-sized jet market with the A350 pitted against the US manufacturer's 7E7 Dreamliner.

On the corporate front, BAE could yet pull off its long-cherished transatlantic merger but between now and then, watch out for further developments in Europe with France's Thales and Eads, the Franco-German group, also considering whether to tie the knot.

In the defence sector, the Ministry of Defence should finally give its blessing to a merger of the UK's warship building yards, followed shortly after by the go-ahead for construction of the two biggest aircraft carriers ever to set sail from Britain. But how much will they cost - £3bn or £4bn - take your pick.

Michael Harrison

Leisure:

Wheels of change are turning

Casino groups had hoped to get their bulldozers going in 2005, concreting Britain to make way for thousands of slot machines. But after the Government cut back on its plans to open up the gaming market, the bulldozers will be standing idle while companies instead go all-out to win the jackpot prize of a new operating license.

Only 24 new casinos will be allowed after changes to the Gambling Bill - eight small, eight large, and eight "mega", Las Vegas-style locations. Decisions on who will get what will not surface until late next year. Local councils should steel themselves for some heavy-handed lobbying, and there could be some consolidation among the smaller UK players.

Fewermega casinos may be good news for the pub and club industry. But there has been chronic over-capacity and consolidation in the high street pubs arena has to happen. If not, price wars - and binge drinking - will continue.

Big tobacco will remain in the dock in the US, with the six largest companies awaiting judgment on a $280bn (£150bn) racketeering case. UK companies will also face a grilling by MPs this month on contraband trade.

Rachel Stevenson

Pharma:

Time to cure 2004's headaches

The UK's biggest drug companies enter 2005 questioning their traditional business models as never before.

Their reputation among the public is at rock bottom, drug prices in the US - until now the most lucrative market in the world - are under pressure and a string of safety scares has forced regulators to take a more cautious approach to new approvals. A priority will be to cut costs, with giant sales forces under threat.

The UK's two Goliaths, GlaxoSmithKline and AstraZeneca, start the year with new chairmen, the former Vodafone chief Sir Christopher Gent and Louis Schweitzer of Renault, respectively. GSK must show progress in a pipeline of future drugs which includes a vaccine for cervical cancer and, most risky, a painkiller similar to Merck's withdrawn Vioxx.

AstraZeneca has to pick a successor to Sir Tom McKillop, its chief executive, and pick up the pieces after a bad 2004, when two of its biggest hopes turned out to be ineffective or dangerous. A whistleblower at the US Food and Drug Administration has put the world on notice that Crestor, the anti-cholesterol pill that is AstraZeneca's remaining growth driver, has safety issues too.

Stephen Foley

Comments