United Kingdom inflation is falling, but the country and its hotel industry are far from free of painful cost increases.
In particular, hoteliers who had no choice but to renegotiate longer-term energy contracts in fall and winter — when energy costs soared and government pandemic-era energy cost relief schemes ended — are feeling the worst of it now.
Such energy cost pressures are on top of rising food-and-beverage costs, which are proving to be even more pronounced. Annual U.K. food inflation was 19.1% in April and 19.2% in March.
In April, overall U.K. inflation was 8.7%, according to the Consumer Prices Index's latest report from May 24. April's inflation level was down from 10.1% in March and the recent high of 10.4% in February.
The U.K.'s Office for National Statistics said in its latest report that “electricity and gas prices contributed 1.42 percentage points to the fall in annual inflation in April as last April’s [Office of Gas & Electricity Markets energy cap dropped out of the annual estimates], but this component still contributed 1.01 percentage points to annual inflation.”
It is likely business energy prices, which have not been subject to price caps, will decrease further, but for some businesses the upheaval of the past 14 months has led to considerable pricing and contractual headaches.
Small- and medium-sized business, which have received some government support around energy wholesale prices — although the level of that support dropped on April 1 — are under particular pressure. What's more, business energy prices have doubled in the past year.
Paul Milsom, managing director of Milsom Hotels & Restaurants, said he has talked to hoteliers who view inflation as a bigger challenge to business than the economic effects of COVID-19.
He described the past year of energy price increases as “utterly crippling.”
“We have five different properties, and there are different arrangements across them for energy contracts. Energy companies force people back into contract when the contract ends. It is not permitted to take a noncontractual price. This really is the biggest scandal,” he said.
Milsom said he expected to have to pay more in energy costs when his contracts came up for renegotiation.
“It rose from twopence (2.5 cents) a [kilowatt] to 14 pence ($0.17),” he said, adding the out-of-contract price would have been almost double that higher rate.
“We are now paying through the nose,” he said.
Kate Nicholls, CEO of UKHospitality, said she is encouraged by lower inflation in April but insisted further decreases in energy and food-and-beverage costs are needed to stop more businesses from potentially failing.
“This continued inflationary pressure shows there is a long way to go in this crisis yet. Food and drink are part of the core hospitality offering, and it is becoming impossible for many to continue to absorb these costs,” she said.
Milsom said the government seems to lack the political will to help businesses defray the higher costs.
"It provided positive help during COVID, but the sad thing is that the hospitality industry tends to keep its head down and get on with things. Overall, [the hotel industry does] not need much help. During COVID, we got it, but definitely we need it now in relation to energy,” he said.
“We have appetite for the future, but we’d like to see one with not so much uncertainty. [Milsom Hotels is] busy. We have learned how to weather the storms with a great team, but it is incredibly sad to see business suffer, hard-working people, the heart and soul of the industry, suffer,” he said.
For business energy users, the government has replaced the former Energy Bills Relief Scheme, which ended on March 21, with the Energy Bills Discount Scheme, which is due to end on March 31, 2024.
“We’re seeing energy costing us 10,000 pounds extra a month. You cannot borrow that,” Milsom added. “Hotels always have provided a warm welcome with the lights turned on 365 days, but now there is a limit in what we can do.”
In Deloitte’s most recent U.K. webinar, chief economist Ian Stewart said the easing of energy prices and the likely peaking of inflation have been two of the three major positive trends in the macroeconomic landscape since January. The other was the reopening of China.
But in the global economic picture, “the U.K. is lagging,” Stewart said.
“The net percentage of [chief financial officers] who are more optimistic about the financial prospects of their business is higher than three months ago, but they rate the level of external financial and economic uncertainty facing their business as high or very high,” he said.
Stewart added his research shows that “service providers appear confident that demand remains sufficiently resilient to pass on higher costs to clients … [but] watch out for passing on prices.”