Interest rate hike threatens viability of hospitality businesses

19 May, 2023

On 11 May, The Bank of England implemented a 0.25% increase, raising the interest rates to 4.5%.

However, UKHospitality has expressed concerns over the potential consequences, stating that it could have a notable impact on the sustainability of hospitality businesses.

Kate Nicholls, CEO of UKHospitality, highlighted that the hospitality industry suffered the most during the pandemic, leading many businesses to secure loans as a means of survival.

As these loans are now coming due, the continual rise in interest rates exacerbates the burden of debt and adds to the economic challenges faced by venues.

Kate commented:

"Loan repayment is not the only price pressure pressure businesses face, with the sector now in a period of peak energy pain.

Urgent action is needed from Government to bring costs down, particularly on energy, and more needs to be done to assist businesses in their pandemic debt.

We would urge HMRC to be lenient in their demands from businesses at this point, allowing Time to Pay arrangements."

Lionel Benjamin, co-founder of AGO Hotels, expressed concern over the impact of rising interest rates on the hospitality industry. Inflationary cost pressures, such as increasing food and energy prices, have already strained the sector.

The announcement of higher interest rates tightens financial resources further, affecting deals in the market and creating a gap in debt funding. Uncertainty in the market and escalating operational costs pose a threat to the sector's recovery, despite its performance progress in 2022.

Benjamin added:

"We are also seeing a debt funding gap as lenders adopt a view of declining real estate values versus pre-pandemic levels.

The sector held its own in 2022 with some record growth in rate and occupancy, this performance recovery may stall as we face uncertainty in the market and operational costs continuing to rise."

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