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Hospitality industry braced for soaring inflation

Published:  07 February, 2022

As the cost of living crisis and soaring energy bills continue to affect households across the UK, many in the hospitality sector are predicting double-digit price rises, inevitably to be passed on to consumers.

According to a recent UKHospitality survey of over 340 hospitality businesses, repre-senting 8,200 venues, nearly half of operators (47%) reported that they will be forced to increase consumer prices by over 10% this year, with 15% anticipating hikes of over 20%. Overall, it is expected that prices across the sector will increase by 11%.

The inflation comes off the back of a Christmas trading period devastated by Omicron in a sector already mired in debt and low on cash reserves, following nearly two years of se-verely disrupted trading. The increase in prices is being driven by soaring operating costs, particular energy and food prices.

“With a return to 20% VAT, plus a rise in business rates and higher labour costs pro-posed for this April, the sector’s plight looks set to have a significant impact on the UK’s economy. Hospitality’s proportionately larger weighting in the Consumer Prices Index (CPI) means that the average 11% price increase would mean a 1.7ppt rise in CPI. By com-parison it would take a rise of more than 50% in energy prices to have a comparable ef-fect,” said a representative from UKHospitality.

In addition, over 80% of operators surveyed said they had experienced either moderate (39%) or severe (42%) levels of cancellations since the start of the year, indicating that consumers are already feeling the pinch.

UKHospitality chief executive, Kate Nicholls, commented: “Omicron has infected the start of 2022 with lower than expected trading levels and higher than expected cancellations in hospitality venues. One in three businesses in our sector have no cash reserves left and are already carrying heavy debt burdens. Many of our community pubs, restaurants, ho-tels and hospitality venues will therefore fail as the cost of living crisis bites, causing de-mand to fall. This can only cause the UK’s wider economic recovery to stutter.”

She added: “This April’s planned increases in VAT, employment costs and business rates are therefore likely to prove one financial burden too many for businesses who only then, as we come out of the quieter winter trading period, can hope to begin to start trading at full capacity once more.

“The industry wants to play its full part in the UK’s recovery from the pandemic but, as these latest figures highlight, we can only do that with further support from the govern-ment – support that must include keeping VAT at 12.5% permanently.”