Interest Rate Increase Could be ‘Final Straw’ for Some Hospitality Businesses

With the hospitality sector continuing to face a slow recovery from the pandemic and more recent challenges presented by the cost-of-living crisis and soaring energy and utilities costs, the SLTA (Scottish Licensed Trade Association) has warned that today’s interest rate increase to 1.75% could be too much for some smaller businesses to bear.

Colin Wilkinson, SLTA managing director, said:
“The last thing businesses need just now is for the Bank of England to increase the interest rate to its highest level since December 2008. Businesses have been feeling the squeeze since the pandemic hit two-and-a-half years ago and are already grappling with paying off debts incurred during Covid. This could be the final straw.

“Many businesses have also incurred extra costs in finding staff who left the hospitality industry during the pandemic and because of Brexit, while those beginning to find their groove again over the summer have seen their efforts thwarted by ongoing train strikes.

“At a time when the Scottish hospitality industry should be upbeat with the festival season under way and warm, sunny weather encouraging people to get out and about again, the mood is decidedly downbeat as business owners speculate over what the next barriers to recovery will be.”

Mr Wilkinson added:

“The outlook really is gloomy for hospitality businesses who don’t want to pass on rising business costs to their customers who are facing the same soaring cost increases to their energy, fuel and food bills. However, for some there is no choice and finding the right balance is proving exceptionally difficult for many.

“SLTA has previously described the combination of all of these mounting overheads, skills shortages and concerns about the economy as creating a ‘perfect storm’ – the reality is that the storm has not yet reached its peak.

“We need to see a host of urgent measures to help businesses, including a reduction in the rate of VAT and lower business rates.”

Mr Wilkinson also called on the next Prime Minister to adopt a “business first” agenda. “The next leader of the Conservative Party and our new Prime Minister must immediately adopt a sharp focus on the economy and put business first in order to protect businesses and jobs, and stimulate economic growth,” he noted.

Mr. Viv Watts, cofounder of AGO Hotels and property investor, said:
“It’s understandable that there is a pressing need to manage inflation, but it is disappointing that the tool the government is using to combat this – via the central banks – is interest rates. Currently we are facing supply-side issues and raising interest rates will not solve this. The result, instead, is simply making things unaffordable for people and pushing them into a territory of not being able to continue to afford those things that they previously consumed; especially, even small luxuries, like travel and holidays.
“For the hotel sector as rates rise, we are feeling the pinch. Business costs rise but we can’t continue to pass these costs to customers who are struggling to cope with soaring prices. Difficulties in finding staff have also only added to cost increases.
“No-one has a silver bullet to control inflation but instead of raising rates, the government needs to seek solutions to tackle supply side issues, specifically on food and energy issues. By taking its current approach, they are simply treating a sprained ankle by breaking a finger – using this to distract from the bigger issue.