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Cut in interest rates eases repayment pain

13 November 2008 by

The move by the Bank of England to cut interest rates to to 3.5%, the lowest level since 1955, has been broadly welcomed across the hospitality industry.

Last week's dramatic move has been particularly felt by independent hoteliers, many of whom have enjoyed a substantial reduction in their repayment amounts.

Beppo Buchanan-Smith, owner and operator of the Isle of Eriska Hotel, Spa & Island, said his repayments had gone down substantially since the cut. "For every £100,000 we borrow the cost is now £500 in interest per month. Three months ago it was £750 to £800, so that's the day-to-day difference it's making to us," he told Caterer.

Alan Parker, chief executive of Whitbread, also welcomed the move. "Anything done to shorten the length of the recession will be good for the industry as a whole," he said. "But banks will not be active until the other side of Christmas and we'll see what develops in the New Year."

But Ed Fazakerley, partner at private equity company Zeus, which formed the Hallmark Hotel Group in 2007 and invested £50m to acquire underperforming three-star hotels and refurbish and convert them to four-star status, remained cautious.

"Discretionary spend will remain at a minimum throughout 2009, meaning that large operators will continue to batten down the hatches and focus on making their businesses as lean as possible," he said. "The interest rate cut is absolutely not a panacea - 2009 will be a tough year for all."

This opinion was shared by hotel consultant Melvin Gold, who said that although the move was helpful, hoteliers would still be concerned about their income levels. "This is not just a normal interest cut, and the extent of it surprised most people. Which begs the question, what does the bank of England know that we don't?" he added.

Boost for shares

Shares in the heavily indebted pub group Punch Taverns, whose net debt stands at £4.5b, rose 6.4% higher to 182.75p, having traded 3.2% lower at 166.25p before the rate cut thanks to the reduction in interest rates.

Rival pub chain Enterprise Inns, which is carrying net debt of £3.8b, also rallied following the rate cut, to trade 13.7% higher at 130.75p.

By Gemma Sharkey

E-mail your comments to Gemma Sharkey here.

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