Sector reacts to 'worrying' interest rates hike
On Thursday 3 November, the Bank of England announced the base rate of interest would increase by 0.75% to 3%, reportedly the biggest single increase for three decades, in a bid to curb inflation.
Additionally, Bank of England Governor, Andrew Bailey, said the level of economic activity was “likely to be flat or fall” for some time and cited supply chain issues, shrinkage of the UK labour market and Russia’s invasion of Ukraine as the main contributors.
Hospitality Ulster chief executive Colin Neill said: “The hike in the interest rates by the Bank of England is a worrying development.
“This will have a serious impact on the hospitality sector here at what should be the busiest time of the year. The festive season is when many of the businesses use what should be a better trading period to sustain themselves in the leaner months in the new year. Sadly, this opportunity is frittering away.”
Tough road ahead
Moreover, the bank forecasted the UK was facing a two-year recession, with interest rates having risen 2.9 percentage points since December and inflation not expected to fall until the middle of next year.
Bailey said there was a “tough road ahead” but it was the “responsibility” of the bank to control inflation rates.
He added: “Low and stable inflation is the bedrock of a stable economy, a predictable economy where people can go about their lives and plan for their future with confidence, an economy in which hard earned money keeps its value. If we do not act forcefully now, it will be worse later on.”
Additionally, Neill stated through research conducted by Hospitality Ulster and its counterparts, a reduction in household income and the wider cost of living crisis has changed people’s behaviours when eating or drinking within the on-trade, putting the sector under “serious pressure”.
Hard pill to swallow
Neill added: “The entire hospitality industry is getting it from both ends. The interest rate hike is a hard pill to swallow at a time when we need an injection of positivity.”
Furthermore, UKHospitality (UKH) chief executive Kate Nicholls said the rise would have a significant impact for consumers as they face mortgagee payments rising once again and would inevitably cause further damage to consumer confidence, as well as impacting cash flow and liquidity for hospitality businesses as interest rates feed through into businesses lending, impacting a willingness to lend to the sector.
She added: “[This] announcement will further worry hospitality businesses already struggling due to rising costs.
"Hospitality businesses have already seen a marked decrease in people visiting their venues and [this] announcement could compound that once again, dealing another blow to the sector."
Additionally, in a post shared to Twitter Nicholls stated inflationary spirals remain real.
Inflation forecast to peak 10.9% before falling back close to zero by 2025 - so again a protracted period of pain and with high labour costs and forecast large increases in NMW/NLW the risk of price increases and inflationary spirals remain real
— Kate Nicholls OBE (@UKHospKate) November 3, 2022
Echoing this, British Beer & Pub Association (BBPA) chief executive Emma McClarkin said pubs and breweries were already stuck between a “rock and a hard place” of not wanting to increase prices but seeing soaring costs across the board with consumers “tightening their belts” following the new of interest rates rising.
She added: “If the Government wants to help our industry keep a trip to the pub affordable this Christmas, we need the beer duty freeze to be reinstated as soon as possible, and a wholesale look at the cost of doing business.
“Spiralling inflation is driving our pubs and brewers to breaking point and many more will be forced to shut their doors for good if urgent action isn’t taken to save them.”
