Robust growth enjoyed by the hotel and catering trade in 2004 is likely to slow this year, according to a review of the hospitality and leisure sector by Barclays.
Trips by foreign visitors reached record levels of 27.7 million in 2004, helping the hotel sector stage a strong recovery from the legacy of foot-and-mouth, terrorist attacks and the Sars epidemic.
Meanwhile, spending in restaurants and cafs rose to the highest levels since 2000.
As a result, the number of hotel and catering business failures has continued to fall from its peak in the early 1990s.
While Barclays maintains the recent terrorist attacks on London will have an adverse impact on trade in the short term, it has identified larger-scale pressures on business.
They include the slowdown in global economies, a weak US dollar, and rising costs from legislation such as the national minimum wage.
The bank also warns that high oil prices will depress the travel trade, while consumer spending will be hit by rising interest rates and a weakening property market.
The hotel recovery was led by the London market but business remains below the peak of 2000. Hikes in occupancy levels petered out towards the end of 2004, and Barclays believes they are near their ceiling, leaving room rates as the sole driver of growth.
And, while pubs, bars and restaurants led alcohol sales growth for the first time since 1998, the report pointed out that much of the increase stemmed from heavy discounting, and the long-term trend was towards home consumption.