UK hotel sector 'feeling the pinch' from higher interest rates

The Bank of England’s recent 0.5 percentage point hike in interest rates is 'unwelcome news' for the UK property sector in general and will hit the struggling hotel business particularly hard, say industry professionals.

Vivian Watts, cofounder of AGO Hotels and an international property investor, said raising interest rates was ‘not the right tool’ for managing inflation.

‘It’s understandable that there is a pressing need to manage inflation, but it is disappointing that the tool the government is using to combat this – via the central banks – is interest rates.’

The BoE announced it would raise interest rates by 0.5 percentage points to 1.75% on 4 August, the biggest increase in 27 years. It hinted that further rate increases were likely and forecast the UK would slide into a 15-month recession later this year.

‘Currently we are facing supply-side issues and raising interest rates will not solve this,’ said Watts, whose AGO platform has a portfolio of 14 hotels across England, Scotland and Wales. ‘The result, instead, is simply making things unaffordable for people and pushing them into a territory of not being able to continue to afford those things that they previously consumed; especially, even small luxuries, like travel and holidays.’

As rates rise, he noted, the hotel sector is ‘feeling the pinch’.

‘Business costs rise but we can’t continue to pass these costs to customers who are struggling to cope with soaring prices. Difficulties in finding staff have also only added to cost increases.’

He added: ‘No-one has a silver bullet to control inflation but instead of raising rates, the government needs to seek solutions to tackle supply side issues, specifically on food and energy issues. By taking its current approach, they are simply treating a sprained ankle by breaking a finger – using this to distract from the bigger issue.’

Roger Clarke, CEO of international property stock exchange IPSX, commented: ‘This is the end of the era of cheap credit. The BoE raising rates is unwelcome news for borrowers and investors. Higher rates mean higher financing costs for investors and weaker consumer sentiment, which means that allocators will continue repositioning their exposure towards assets with reliable sources of visible income that can act as a hedge against inflation.

Fortunately, he remarked, liquidity is ‘not as scarce as it was in 2008, which should prevent commercial property void rates from increasing in any substantial way if a sharp downturn does occur’.

He noted: ‘Certain subsectors are more vulnerable than others as a result of the cost of living crisis, particularly retail, with lower spending likely to dampen performance and capital values. However, low levels of debt and inflation linked lease agreements mean that that commercial property is well placed compared to many other sectors.’


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