Inflation drops following fall in petrol and food prices

25 July, 2023

Industry leaders view the decline in inflation as "encouraging" for the sector; however, they also suggest that businesses are not fully "out of danger" yet.

Data from the Office for National Statistics (ONS), published on Wednesday 19th July, indicates that the headline inflation rate fell to 7.9% in the year to June 2023, a decrease from the 8.7% recorded in May.

British Beer & Pub Association (BBPA) chief executive Emma McClarkin said:

“This will be welcome news to pub and brewing businesses, but we’re not out of the woods as there is still a long way to go for the pressures on our customers and supply chains to feel the difference.”

In June, the monthly inflation rate experienced a modest increase of 0.1%, this followed a rise of 0.8% in June 2022.

The decline in inflation was predominantly influenced by a decrease in fuel prices, but the Office for National Statistics (ONS) also noted significant downward impacts from food and non-alcoholic beverages.

The data reveals that food inflation eased to 17.4% during this period, a reduction from 18.4% in the previous month. However, food costs did show a slight increase of 0.4% between May and June this year.

UKHospitality (UKH) chief executive Kate Nicholls commented:

“The rate of inflation reducing more than expected is good news for hospitality businesses, but it remains the case that food and energy costs are incredibly high.

This reinforces that for inflation to fall further and faster, there needs to be more action to bring down those twin pressures of food and energy costs.

Hopefully today’s better than expected figures also give pause for thought on additional rate rises, which are already having a significant impact on the sector.”

Additionally, food prices continue to be a pressing concern for many businesses, as evident from the a recent 'business confidence survey' which revealed that 50% of senior-level operators expressed worry about the post-pandemic recovery of the sector, primarily due to food costs.

According to the results of this survey, 79% of operators were troubled by energy prices and contracts, while over half were concerned about business rates (59%) and VAT (54%).

In terms of business outlook, only 54% of respondents felt optimistic about their prospects for the next 12 months. Alarmingly, 28% stated having less than three months' worth of cash reserves, with one in seven businesses (14%) admitting that they were at risk of failure within the upcoming year. These figures underscore the challenges and uncertainties faced by businesses within the sector.

McClarkin added:

“Our pubs and brewers need confidence to invest and grow their businesses, whilst their customers need reassurance that inflation will continue to slow, and prices fall to give people more spending power.

This news is positive, but we need inflation to continue falling not just be a one off in order for our industry to perform to its full potential and support communities and economies across the country."

Michael Kill, the CEO of Night-time Industries (NTIA), acknowledged that the recent inflation decline was a positive step forward. However, he emphasised that many operators remained apprehensive about the upcoming changes to alcohol duty scheduled for the next month. These alterations have the potential to nullify any gains experienced by the sector in the short term, causing additional concern among industry stakeholders.

Kill added:

“While we see a positive reflection in the inflation figures, we are some way off suppressing the cost inflation crisis suffered across the night-time economy and hospitality sectors.

It is important the Government continues to engage with the sector over the coming months and accepts that there will need to be a fiscal intervention for businesses at the sharpest end of this crisis.”

Ed Bignold, managing director with Alvarez & Marsal’s corporate transformation services, commented:

“We are now entering one of the ‘golden periods’ of the year for hospitality, and a slight drop in the pace of increasing restaurant and hotel prices is a welcome development for both the sector and consumers. This follows yesterday’s news that in recent weeks, supermarkets have charted the most significant fall in checkout costs since grocery inflation peaked in March.

As international travel becomes increasingly expensive, more Brits are expected to opt for staycations this summer. This may help sustain footfall in the UK’s restaurants, pubs and bars, and keep hotels at higher occupancy for longer.

Nevertheless, the industry continues to be squeezed by input cost inflation and elevated wages, which show no signs of abating. Further pressure on consumers, particularly those facing rising mortgage costs, could dampen demand in the sector.

With margins still under significant pressure, the coming months will be absolutely critical in ensuring the continued viability of many businesses in the sector.”

In light of these facts, the Government has established an ambitious goal of reducing inflation by half, aiming to reach 5.3% by the end of the year.

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