Latest figures from the Office for National Statistics (ONS) show that total business investment among hotels and restaurants fell to £304m in the second quarter of the year, down from £973m in Q2 2019.
This drop-off is far sharper than the slowdown seen across the wider economy with overall business investment across UK industry falling by just over a quarter (26.1%) in Q2 compared with the second quarter of 2019.
While UK GDP shrank by a fifth (20.4%) in Q2 according to ONS data, with widespread declines across all main sectors of the economy, GDP grew by 8% in the three months to the end of August as lockdown measures eased, raising hopes of a recovery in investment.
Caught off guard
These figures come after the UK slipped into its first recession since 2009 in September after suffering its biggest slump on record as a knock-on effect of the Covid-19 pandemic.
The economy shrank by a fifth (20.4%) versus the first three months of the year during April, May and June as a result of factors including a drop-off in household spending in shops and hospitality venues, which were shuttered by Prime Minister Boris Johnson on 20 March for a total of 105 days, 15 weeks or 28.69% of 2020, before sites were allowed to reopen from 4 July.
“This year has caught everyone off guard,” Mark Tighe, Catax’s CEO said. “The second quarter was when the pandemic really saw economies slamming on the brakes, with the national lockdown in the UK being announced on March 23, just before it began.
“The hospitality sector fared terribly in percentage terms, although in raw figures its declines are much less pronounced than other industries.
“It will take some time for business investment to climb back to where it was at the start of the year, when the only threat on the horizon appeared to be Brexit negotiations. The speed of that recovery will depend very much on how long the second wave lasts and how much disruption is to come.”
Consumer confidence key
Restored consumer confidence is the key to boosting levels of investment in the hospitality sector after a 6% – roughly £800m – year-on-year hit according to OakNorth Bank’s senior debt finance director Mohith Sondhi.
“If people see others regularly go out and socialise again and being very comfortable with that, and then money starting to flow back into the sector and people say ‘we've got over lockdown, we're comfortable with it, it's the new normal’, you'll naturally see investment come back in,” Sondhi told The Morning Advertiser (MA) in July.
“If the consumer is a bit reluctant and isn't spending what people think they will be spending, people are just going to wait and see for a period of time.
“Take pubs for example, a number of people aren't opening their pubs until August because they want to wait and see what happens. It takes longer because any smart investor wants to know what trading looks like.”