Bank Of England Maintains 4% Interest Rate As Hospitality Sector Faces Continued Pressures

The Bank of England has kept interest rates unchanged at 4% following yesterday’s Monetary Policy Committee meeting, delivering a mixed message for the hospitality and licensed trade sectors grappling with persistent cost inflation and weakened consumer demand.

Governor Andrew Bailey emphasised the need for continued vigilance, stating that monetary policy makers remain cautious about the economic outlook as inflation persists well above the central bank’s 2% target.

Hospitality Sector Bears Brunt of Rising Costs

The decision comes as food price inflation continues to squeeze profit margins across pubs, restaurants, and hotels. Latest data reveals food and non-alcoholic beverage costs have surged 5.1% year-on-year, with particular pressure from rising beef, dairy, and chocolate prices – key ingredients for many hospitality businesses.

The Bank’s regional agents report that consumer-facing service providers, including licensed premises, continue struggling to pass on elevated labour and food costs to customers already feeling the pinch from broader economic pressures.

Tourism and Accommodation Demand Remains Weak

Hotel accommodation and tourism spending across the UK remains notably subdued, according to the Bank’s latest business intelligence gathering. The central bank noted that consumer demand in these sectors appears concentrated around major events, citing recent high-profile concerts as rare bright spots for venue operators and local hospitality businesses.

This uneven demand pattern presents particular challenges for operators who must maintain staffing and inventory levels while experiencing inconsistent revenue streams.

Monetary Policy Outlook

Two members of the nine-strong Monetary Policy Committee voted for a quarter-point rate cut to 3.75%, suggesting some appetite for further easing. However, the majority position reflects concerns about persistent inflationary pressures, particularly in the services sector where hospitality businesses operate.

The Bank has reduced rates five times since August 2024, bringing them down from a peak of 5.25%. Any future cuts will depend on evidence that underlying price pressures are genuinely subsiding.

With Chancellor Rachel Reeves set to deliver her autumn Budget on 26 November, business confidence remains fragile across the hospitality sector. The Bank’s agents report that many firms cite the upcoming fiscal statement as a source of uncertainty, potentially affecting investment and hiring decisions.