Rise in interest rates could be 'final straw' for some hospitality businesses

The rise in interest rates could be the “final straw” for some hospitality businesses, industry leaders have warned.

The Bank of England (BoE) has increased interest rates from 1.25% to 1.75% in a bid to curb inflation and warned the UK will fall into recession this year.

Russia’s invasion of Ukraine has caused the price of gas to more than double since May with inflation hitting 9.4% in June. The bank said this could reach around 13%, the highest level for 42 years, over the next few months.

The UK is now projected to enter a recession from the fourth quarter of this year with the BoE predicting inflation will return to its target 2% rate in around two years.

Vivian Watts, co-founder of AGO Hotels, which has a portfolio of 14 hotels in England, Scotland, and Wales, warned the rise in interest rates would make “small luxuries” such as travel and holidays more difficult for people to afford.

She said: “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.”

UKHospitality chief executive Kate Nicholls called on the government to set out a plan to deal with the situation.

"There are many fragile companies out there and further business failures will become inevitable without prompt action," said Nicholls.

“The Government and prime ministerial candidates must clearly set out how they will tackle the cost of doing business – the cost of living won’t come down without it – and then explain how their plans will help consumers and the economy through this winter and beyond.”

Colin Wilkinson, managing director of the Scottish Licensed Trade Association (SLTA) said the rise in interest rates was “the last thing businesses need”.

He 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,” said Wilkinson.

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