UKH: growing business costs will cause 'entrenched inflation'

29-Jun-2023 - Last updated on 29-Jun-2023 at 10:18 GMT

Entrenched inflation: UKH calls for Gov to tackle 'ever-growing cost of doing business' to tackle inflation (Pictured: UKH chief exec Kate Nicholls)

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Forcing firms to stay locked into high-priced energy contracts as food costs soar will result in “entrenched inflation”, UKHospitality's chief executive has stated.

A recent member survey by UKH revealed energy costs were up 80% year-on-year, with almost half of businesses who signed a contract at the peak of the energy crisis fearing their business was at risk of failure.

On top of this, the latest CGA Prestige Foodservice Price Index, released earlier this week, estimated foodservice inflation had increased to 21.6% in the year to May 2023, just below the record high of 22.9% of December 2022.

Nicholls said: “If the Government is to achieve its aim of halving inflation, it simply must tackle the ever-growing cost of doing business.

Entrenched inflation

“We’ve seen that food price inflation for hospitality has increased yet again. Energy costs are hitting farmers, food producers, manufacturers and hospitality businesses.

“[This] will result in entrenched inflation, unless businesses can get out of energy contracts that were fixed far above the current market rate.”

At the same point last year, inflation in the index stood at 10.2%, which when combined with the latest figure, means prices have risen by around 34% since May 2021.

Categories under particular strain included vegetables, meat, poultry, sugar, jam, syrups and chocolate.

In addition to rising food costs and onerous energy contracts, the Bank of England also raised interest rates from 4.5% to 5% earlier this month, the highest level for 15 years despite expectations of a smaller rise by analysts.

More urgency

Moreover, the latest inflation figures from the Office for National Statistics (ONS) showed the headline rate remained stagnant at 8.7% in the year to May 2023 while rail strikes were recently estimated by UKH to have cost the sector £3.25bn in lost sales.

Nicholls implored Chancellor Jeremy Hunt to urgently raise issues regarding energy contracts with Ofgem and urged the Government to “step in” to properly investigate the market if the energy regulatory body is “unable to act”.

She continued: “There has been little in the form of action so far. While its review into the non-domestic energy market was positive, it has been ongoing for at least six months with no conclusions.

“The severity of the situation facing hospitality businesses requires far more urgency from the regulator and this inaction has resulted in business failure, which we have continuously warned of.”