Interest rate rise could ‘significantly impact' viability of hospitality businesses

The Bank of England has raised interest rates by 0.25 percentage points to 4.5% this week, which UKHospitality has warned could "significantly impact" the viability of hospitality business.

UKHospitality chief executive Kate Nicholls said: "Hospitality was the business sector most affected by the pandemic, with a large number of businesses forced to take out loans to survive. With those loans now due, consistently rising interest rates compound debt and inflict further economic pain on venues.

"Loan repayment is not the only price pressure businesses face, with the sector now in a period of peak energy pain. Urgent action is needed from Government to bring costs down, particularly on energy, and more needs to be done to assist businesses in their pandemic debt. We would urge HMRC to be lenient in their demands from businesses at this point, allowing Time to Pay arrangements."

Lionel Benjamin, co-founder at AGO Hotels, added that it was "not good news" for hospitality as the industry continues to grapple with inflationary cost pressures, including rising food and energy prices.

"AGO Hotels have seen overall costs rise to an average of 43% from 36% over the last nine months. Today's announcement means a further tightening of the purse springs," he said.

He added that interest rates were impacting deals in the market with a slowdown in transactions as investors evaluated the impact of interest rates on the cost and availability of debt.

Benjamin said: "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."

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