What does the interest rates rise mean for pubs?

By Stuart Stone contact

- Last updated on GMT

Rate increase: The Bank of England have increased the UK's interest rate for the first time in a decade
Rate increase: The Bank of England have increased the UK's interest rate for the first time in a decade

Related tags: Money, Monetary policy, Interest rate

For the first time since July 2007 the government has increased interest rates. Here’s how the decision could affect the average British pub.

The Bank of England’s first increase in interest rates for more than ten years has seen the official bank rate rise from 0.25% to 0.5%.  

The move reverses a cut made in August last year and has been taken in the wake of Britain’s decision to leave the European Union.

But what does the interest rates rise mean for the average British pub?

Pressure on the bottom line

A spokesperson from the British Beer and Pub Association said: "Higher borrowing costs will add to pressure on the bottom line, especially if we see the start of an upward trend. We invested close to £2 billion across the UK in 2016, from plant in breweries to the infrastructure of pub estates.

“As the rates rise is driven by inflation, it makes it even more vital that the Government does not follow up with more tax rises in beer duty in the Budget. In terms of costs for pubs, this would just be adding more fuel to the fire.”

Kate Nicholls, chief executive of the ALMR, shared concerns of the impact of the interest rate rise. She commented: "A doubling of interest rates will only exacerbate the perfect storm of rising input costs and softening consumer demand. The Government needs to deliver support for businesses on business rates and alcohol duty at the budget and provide clarity on Brexit to provide stability. Otherwise, continually rising costs will only undermine investment.”

'A sign of Brexit damage'

The decision means that mortgage payments for freeholds will increase and that almost four million households will face higher payments – with home owners having around £20-£40 less disposable income per month.

This concern over the increase, and ultimately the impact of Brexit on business, was reflected in the response Chukka Umunna MP gave via the Open Britain blog.

He wrote: “This news is bad news for mortgage-holders and small businesses up and down the country, and is a reflection of how Brexit is already damaging our economy.”

'Beneficial for investors, operators and consumers' 

However, concern about the impact on pubs isn’t wholesale.

Neil Morgan, managing director of pubs and restaurants at property firm Christie & Co, viewed the step as a positive for the industry, commenting: “I believe that [the interest rate rise] will be seen as positive by participants across our sectors. It's the first signal that markets are on a steady path back to a more normalised interest rate environment after 10 difficult years following the financial crisis. This will be beneficial for investors, operators and consumers as markets return to an equilibrium that will benefit the general economy over the coming years.

“Naturally some additional cost will filter through for those whose mortgages or debt are on variable interest rates, although it will add only marginal cost that must be kept in perspective. The UK’s pubs and restaurant sector is remarkably resilient and businesses that are already adapting to the increasing operational costs will be unlikely to notice much of a difference - I understand that a variable interest rate mortgage of £125k will see a rise in costs of only around £15 a month. Conversely, that the Bank of England are taking pro-active steps to curb inflation will likely be of much greater benefit to these businesses, as cost inflation has recently been on the rise.”

Likewise, Rob Cockayne, a commercial property specialist for the South East, East Anglia and London regions, was less fearful of the overall impact.

Responding via Twitter to the scale of the impact the interest rise will have on pubs, he commented: “Given the very limited amount of lending in the sector since 2008, I would imagine very little.”

'Psychological h​it'

Simon Chaplin, head of restaurants at Christie & co, said the impact would be more psychological than financial, and would be a positive in the long run. 

"While historically 0.5% remains extremely low, the headline 'interest rates double' will hit the consumer confidence more than the pocket, especially if this is followed by a further increase in say three months. From a restaurant perspective the market sector that has grown fastest has been the spending by Millennials and Generation X, most who don’t have mortgages and aren’t that affected by any changes in interest rates. Operators are still reeling from the headwind costs so this is minor but if it strengthens the pound in the long term, it may help reduce the cost of imported produce."

Elsewhere, the main beneficiaries of the increase will be the UK’s 45 million savers – for example any with over £10,000 will have an extra £14 per year – while pensions and annuities will also be worth more under the new rate.

How will the increase in interest rates affect your pub? Please let us know by sending @Morningad​ a direct message on Twitter.

Related topics: Property law

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