Surge in hospitality sector inflation

22 August, 2023

The rate of inflation for dining establishments and lodgings experienced a modest uptick, moving from 9.5% in June to 9.6% in July. This contrast emerges amidst a broader decline in the overall inflation landscape, as outlined by the Office for National Statistics (ONS).

This escalation can be attributed to an unexpectedly substantial surge in remuneration within the hospitality sector, coupled with an augmentation in accommodation services. Notably, accommodation services witnessed a 12.2% surge in the year leading to July, marking an increase from the 11.3% recorded in June.

On a comprehensive note, the inflation metric reached its lowest point in 17 months in July, primarily due to diminishing energy costs and a moderation in the rate of escalation for food prices.

According to the latest data from the ONS, the rate of consumer price inflation stood at 6.8% during July, marking a decline from the 7.9% recorded in June. The reduction in the year-on-year inflation rates for July 2023 can be attributed to significant downward influences stemming from the realm of food and non-alcoholic beverages.

Specifically, the prices of food and non-alcoholic beverages witnessed a marginal increase of 0.1% between June and July 2023, in stark contrast to the 2.3% rise observed during the same two months a year earlier. This culminated in a moderation of the annual growth rate to 14.9% in July 2023, signifying the most sluggish pace of annual expansion since September 2022.

Ed Bignold, managing director at Alvarez & Marsal's Corporate Transformation Services, commented:

"This is a concerning development for the sector and consumers alike and indicates that hospitality businesses will continue to feel the squeeze, with wage bills making up a significant proportion of all costs.

There are however some bright spots for business owners. International travel has become increasingly expensive, and many Brits have opted for staycations this summer, helping to increase demand for the UK's restaurants, pubs and bars, and keeping hotels at higher occupancy for longer.

These benefits should continue to feed through in the coming weeks. However, to fully capitalise on this effect amid the cost-of-living crisis, the industry needs to tread the line between affordability for consumers and sustaining margin.

As we approach the end of the high season for much of the industry, and expect that lower overall U.K. inflation will take time to translate into increased corporate and leisure demand, even if it does prove to be sustained as a trend in the coming months, actions needs to be taken by operators to maintain margins and cash for debt servicing."

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