Resilient UK Tourism and Recreation Sector Braces For Weaker Consumer Demand Issue 110
Tourism and recreation businesses continued to benefit from the relaxation of Covid-19 restrictions in April, according to the first Lloyds Bank UK Sector Tracker.
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tor to post a record 72.9 on the Tracker’s Prices Charged Index. The gap between the Tracker’s Input Price and Prices Charged indices narrowed to 18.5 points (vs. 18.8 in March), suggesting that margin pressures eased slightly. However, the difference remained more than twice the prepandemic average, underlining a continued squeeze on profitability.
The sector – which includes pubs, hotels, restaurants, and leisure facilities – posted its third consecutive month of output growth, with firms recording the second fastest rate of growth (65.0) of all 14 UK sectors monitored by the Tracker in April. However, there were early indications that inflation has started to erode purchasing power and dampen consumer demand, threatening the outlook for the sector.
Annabel Finlay, Managing Director and Head of Food, Drink & Leisure, Lloyds Bank Commercial Banking, said:“UK firms have continued to benefit from consumers, at home and overseas, looking to travel and embrace leisure activities again after so many months living under Covid-19 restrictions.
The sector’s pace of output growth slowed month-on-month as firms reported a moderation in new business activity for the second month in a row (56.6 in April vs. 63.6 in March and 64.5 in February).
“However, there are early indications that consumer confidence is waning – a factor that could lead to more conservative spending, and future falls in demand. If inflationary pressures remain, many businesses face a dilemma.
The UK Sector Tracker is an evolution of the Lloyds Bank UK Recovery Tracker. It uses PMI data from S&P Global to shed light on current trends in the UK economy. A reading above 50 on the Tracker indicates expansion, while a reading below 50 indicates contraction.
“As this month’s data show, the sector is battling elevated cost inflation, with firms, understandably, adjusting the prices charged to customers to help rebuild margins. How much they can do so without further negatively impacting demand will be a key consideration going forward.
RECORD PRICE RISES AMID SURGING COST INFLATION
“Ultimately, future demand will depend on the degree to which consumers consider travel and leisure spending as core or discretionary. It’s possible that we will witness divergences in demand trends across the economy, as those who have accrued ‘excess’ savings continue to spend, while those with lower incomes exercise greater caution. Firms may need to be agile in response to potential changes in the spending behaviours of their customer bases.”
Tourism and leisure firms reported an unprecedented rise in input costs in April, driven by higher transportation, material, energy and salary expenditure. The sector registered 91.4 on the Tracker’s Input Price Index – the sharpest rate of cost inflation in 24 years of the Tracker’s underlying data.
“Apocalyptic’ Rise in Food Prices Warns Bank of England Against this backdrop, nearly two-thirds (63%) of firms raised prices charged to customers, leading the sec-
The Governor of the Bank of England has warned “apocalyptic” food price increases, citing the war in Ukraine as a major cause.
“And then, the one which I might sound rather apocalyptic about, is food.
On the impact of Brexit, he said there has been no evidence to change the Bank’s view that Brexit will be bad for the UK’s trade.
Andrew Bailey said he felt “helpless” as he defended the bank of England’s monetary policy despite the country being hammered by soaring inflation.
“Two things the Ukrainian finance minister said is that there is food in store but they can’t get it out.
“We have built into our view of the future that there is a negative impact,” he said.
Mr Bailey told MPs at the Treasury Select Committee on Monday that UK consumer demand will be impacted by current inflation, which is the highest in 30 years, and this is expected to cause higher unemployment.
“While he was optimistic about crop planting, as a major supplier of wheat and cooking oil, he said we have no way of shipping it out and that is getting worse.
Matthew Percival, CBI Director for People and Skills, said: “Despite a slowdown in growth this March, the UK’s labour market remains red hot with record vacancies and job-to-job moves.
“It is a major worry for this country and a major worry for the developing world.”
The Office for National statistics recorded inflation at 7% in March and later this week is expected to unveil over 8% inflation for last month.
Mr Bailey also warned that unemployment is set to increase as inflation bites.
He said: the potential for further food price inflation was a “major worry” for the central bank.
He said: prices would eventually be brought down by a “shock” to real incomes which “will have an effect on domestic demand, and it will dampen activity”.
“Ukraine and Russia is the big risk in a way,” he told the Treasury select committee. “One is the risk of a further energy price shock, which would come from the cutting off of gas and distillates, such as products like diesel.
“I’m afraid it looks like it will increase unemployment,” he added. He said the Bank of England is facing its biggest challenge to its monetary policy framework in 25 years.
“Firms are struggling under the weight of persistent labour shortages, rising energy prices and soaring inflation which is adding to the cost of doing business. Workers are also struggling, with inflation already 1.2% higher than pay and rising. “Urgent action is needed to help alleviate the pressure facing businesses and communities across the UK. Putting pounds into the pockets of people facing hardship and stimulating business investment are two actions the government can take now that will help us to emerge from this crisis.”
Cider Makers Call for Change
As part of its biannual Cider Month celebration the Campaign for Real Ale (CAMRA) has joined forces with makers of real cider and perry from across the UK to call for tax reforms that will support high-quality cider. The consumer rights group has created an open letter urging the Treasury to increase the minimum juice content of cider – the amount of fresh juice a drink needs to contain to be classed as cider – in order to support makers of high-quality ciders and perries. Current tax rules only require cider to contain 35% juice, meaning drinks topped up with more water or concentrates than freshly pressed juice can be counted as cider for tax purposes, a situation which the Campaign thinks is misleading to consumers. As strong support grows across the real cider industry, more producers are being encouraged to sign, with the letter due to be delivered at the end of May. Commenting on the campaign, Hiranthi Cook, Founder and Cider Maker of Cidentro Cider House said: “As a new, small cider maker based in
Leicestershire producing cider from English apples, using 100% pressed juice, not from concentrate, I’m all for the government increasing the minimum juice content for cider in the UK to at least 50%. Furthermore, I would like to see the government introducing a separate category for ciders made using over 90% pressed juice content and not from concentrate which I believe would go a long way in informing consumers of the quality of the cider they are choosing to buy and differentiate the qualities of ciders on the market.” CAMRA’s Real Ale, Cider and Perry Campaigns Director Gillian Hough added: “CAMRA are campaigning for a lasting change to give consumers confidence that when they buy a product marketed as cider it contains at least 50% fresh pressed juice. We welcome the Government’s decision to expand cider’s ‘farmgate exemption’ into a small producers scheme and are asking that they step forward to support the makers of high quality, high juice ciders and perries by increasing the minimum juice content for duty purposes.”