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UK hospitality industry yet to recover to pre-Covid trading levels

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The UK hospitality industry has far from recovered to pre-pandemic trading despite tax breaks and increased spending per customer over the summer, the latest sector data shows.

Sales across restaurants, bars and hotels reached £31.6bn in the three months to the end of September, a 73 per cent increase on the summer of 2020 but still 10 per cent down on the same period in 2019, according to figures due to be published by industry tracker CGA.

After months of lockdown at the start of the year, customers spent more than previously when they did go out during the summer but severe staff shortages and soaring costs across the industry meant many businesses were unable to meet the increased demand.

UKHospitality, the industry trade body, warned that the sector remained “in peril”.

Kate Nicholls, UKHospitality’s chief executive, said that profit margins across the industry had been cut by about a third on average since post-lockdown reopenings, and that the trade body was expecting the cost of labour to increase by 11 to 13 per cent next year with operators fighting to recruit and retain staff.

“The anticipation was that the recovery would have been stronger than it has been,” said Nicholls. “It underlines the fragility of the sector. Businesses are not operating at full capacity and full strength.”

Utility costs were expected to increase by between 50 and 80 per cent when the next contracts are renewed over the next six months, while food and drink prices were likely to rise between 7 and 9 per cent, she added.

The hospitality sector is the UK’s third-largest private sector employer, accounting for 10 per cent of employment and 5 per cent of national gross domestic product, although more than 8 per cent of venues have closed permanently since March last year.

The sector has been disproportionately affected by the departure of thousands of European workers following Brexit, as well as many employees leaving the industry to find work in more stable sectors such as logistics during the pandemic.

Nick Mackenzie, chief executive of the pub group Greene King, said he feared staff were working far longer hours to cover labour shortages and would be more likely to hunt for other jobs as a result.

He said it was “inevitable” that prices would go up across the industry in the early part of next year as government support, such as a reduction in value added tax from 20 to 12.5 per cent, was wound down.

New regulations around calorie labelling and a deposit return scheme for single-use drinks containers in Scotland would all add “cost and complexity” when the sector was facing severe pressure on margins, Mackenzie added.

Operators hope that the current drop in Covid-19 rates will continue to the end of the Christmas season, known in the industry as “the golden quarter”, when much of the industry makes the majority of its profits.

But bookings are becoming increasingly last-minute and several business owners have said that customers are wary of putting down deposits on bookings until they are more certain that trips can go ahead.

A serial investor in the sector warned that there could be another wave of business failures following the next quarterly rent payment date at the end of December “when people say I can’t imagine trading profitably in the first quarter”.

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