The Bank of England has raised interest rates by a further half percentage to 4%.
The Bank said that the UK is still headed for a recession but stressed that the economic downturn could be shallower and shorter than previously expected.
This was the Bank’s tenth successive interest rate increase it hinted that there is a chance it might be the last for the time being, saying that it would only raise rates further “if there were to be evidence of more persistent pressures” than in its forecasts.
The UK is expected to suffer a recession of five consecutive quarters, starting in the first three months of 2023. A recession is defined as at least two consecutive quarters of falling output.
However, the decline will be much softer than in previous recessions, such as during the 2008 financial crisis.
Taking to social media UKHospitality CEO Kate Nicholls said:
“This adds significant pressure to businesses with CBILs and other debt – important Chancellor takes this into account in his forthcoming Budget to give hospitality and other sectors a breathing space and help to address costs of business to avoid further price hikes & inflation”
Lionel Benjamin, co-founder at AGO Hotels:
“The hike today of interest rates to 4% may be a necessity to kerb inflation, though the impact on the hospitality industry is not good news.
“The hotel sector is grappling with several challenges specifically rising energy prices and third-party suppliers upping their prices in line with inflation.
AGO Hotels have seen overall costs rise to an average of 43% from 36% over the last six months. Today’s announcement means a further tightening of the purse strings with spending needing to be managed particularly carefully, especially as these additional costs cannot make their way to the consumer.
“Interest rates are impacting deals in the market. There has been a slowdown in transactions as investors evaluate the impact of interest rates on the cost and availability of debt. 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. However, the sector remains of significant interest to the long-term investors who understand the cyclical nature of Hospitality.”
Jonathan Moyes, Head of Investment Research, Wealth Club “The Bank has played it safe with interest rates this month, with a 0.5% interest rate rise – in line with expectations.
Whilst we are not surprised by this course of action, we can understand why two committee members were calling for the Bank to pause. Previous rate rises are already having an impact on the real economy, most notably through lower mortgage approvals, and inflation looks to have turned a corner and is expected to fall sharply to just 1% by 2025.
The Bank is grappling with the question of how sticky wage inflation is likely to be over the forecast period. It highlights private sector regular pay growth has been notably stronger than expected. The labour market remains tight and with national strike action ongoing, it may be some time before the Bank gets the visibility it wants on wage negotiations.
This was a much more optimistic tone from the Bank. Interest rate rises are expected to peak by mid-2023 at 4.5% before easing back, inflation (CPI) is expected to fall to just 1.0% in 2025, and GDP growth has been upgraded significantly from its November forecast.”