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Hospitality faces inflation challenges amid mixed sales results

Published:  23 May, 2024

UK inflation dropped to 2.3% in April, its lowest level in nearly three years. However, the reduction was less significant than anticipated, dampening hopes for an imminent interest rate cut.

City analysts had predicted the annual rise in the cost of goods and services would decrease to 2.1%, nearing the Bank of England’s 2% target.

In response, markets adjusted expectations, reducing the likelihood of the Bank cutting rates from the current 5.25% level next month, with the prospect of a reduction in August also being reassessed.

The 2.3% fall in the consumer prices index (CPI) last month, down from 3.2% in March, was mainly attributed to easing energy and food costs. The last time inflation was lower was in July 2021.

Kate Nicholls, chief executive of UKHospitality, commented on the current state of the hospitality sector and called for reduced interest rates for businesses: “Hospitality has weathered unprecedented costs, including those from government policy. Today’s inflation data marks 18 months of improvement, and we are now at a normal level of inflation.

“The trend is clear, and the Bank of England can now act with confidence. It’s time for interest rates to come down to support businesses investing in their growth. We should be ahead of the curve, not behind it.”

Meanwhile, Britain’s leading hospitality groups experienced a 1.7% year-on-year sales drop in April 2024, attributed to widespread wet weather, as reported by the new CGA RSM Hospitality Business Tracker.

This decline represents the first year-on-year monthly sales drop since September 2022, sharply contrasting with March’s 5.2% growth driven by drier weather and an early Easter. April 2024 faced tough comparisons with April 2023, which included the full Easter holiday. The slightly weaker sales might also indicate ongoing consumer hesitancy about spending despite the recent easing of inflation.

The Tracker, produced by CGA by NIQ in partnership with RSM UK, highlights the weather's impact on various segments of the hospitality industry. Pub sales fell by 1.5% as consumers avoided beer gardens and terraces. Restaurants, which sometimes benefit from wetter weather, saw modest like-for-like growth of 1.2%. Bars were the hardest hit, with sales dropping 15.1% below April 2023 levels. The on-the-go segment experienced a 4.2% decline.

The Tracker also noted regional variations, with hospitality groups in London performing better than those elsewhere. April sales within the M25 were 0.3% higher than last year, while sales outside the M25 dropped by 2.2%.

Karl Chessell, director at CGA by NIQ, said: “After 18 consecutive months of year-on-year growth, the hospitality sector faced a challenging April. This highlights the strong correlation between weather and sales and suggests that some consumers have reserved their dining and drinking out for special occasions and holidays like Easter. Brighter weather in May should encourage more people to go out to eat and drink, and the medium to long-term outlook for hospitality remains positive. However, it’s evident that businesses and consumers continue to face significant cost pressures.”

Saxon Moseley, head of leisure and hospitality at RSM UK, added: “April’s poor results were undoubtedly impacted by the early Easter break, which mostly fell into the previous month. Poor weather and sluggish consumer confidence also contributed to the first like-for-like sales reduction since 2022.

“While there are reasons for optimism later in the year, with consumer confidence expected to rise due to real-term wage increases and falling interest rates, April’s disappointing results offer little comfort after a lacklustre first quarter for many. The industry desperately needs a prolonged spell of dry, warm weather as a prelude to a long summer of sporting events, which would bring supporters together in their local pubs and bars.”