SOARING interest rates could be the “final straw” for struggling hospitality businesses, industry leaders have warned as the UK economy faces a predicted recession.
The Bank of England on Thursday raise interest rates to 1.75% - their highest levels since 2009 – as inflation is now forecast to reach 13%.
Independent pubs and restaurants could be forced to close, said the Scottish Licensed Trade Association (SLTA), adding that the “perfect storm” of grim trading conditions “has not yet reached its peak”.
The body, which represents hospitality venues, demanded both Rishi Sunak and Liz Truss adopt a “business first” approach to the flagging economy and said they must commit to slashing VAT and business rates.
Businesses are facing increased costs due to Brexit and the hangover from the pandemic, the SLTA added.
It comes as the body representing nightclubs and bars, the Night Time Industries Association (NTIA) Scotland said more than one-third of the sector feared “collapse”.
A survey of its members found 25% were “not confident” their businesses would survive the next 12 months, with 38% “unsure”.
The economy is expected to enter a recession, the Bank of England has announced, with growth expected to shrink in the last three months of this year and to continue to decline into 2023.
It comes amid dire warnings the cost-of-living crisis will reach new heights in October, with inflation set to reach 13% if the energy regulator allows an expected rise in household bills to go ahead.
Colin Wilkinson, SLTA managing director, said: “Businesses have been feeling the squeeze since the pandemic hit two-and-a-half years ago and are already grappling with paying off debts incurred during Covid. This could be the final straw.
“Many businesses have also incurred extra costs in finding staff who left the hospitality industry during the pandemic and because of Brexit, while those beginning to find their groove again over the summer have seen their efforts thwarted by ongoing train strikes.”
He added: “The outlook really is gloomy for hospitality businesses who don’t want to pass on rising business costs to their customers who are facing the same soaring cost increases to their energy, fuel and food bills. However, for some there is no choice and finding the right balance is proving exceptionally difficult for many.
“SLTA has previously described the combination of all of these mounting overheads, skills shortages and concerns about the economy as creating a ‘perfect storm’ – the reality is that the storm has not yet reached its peak.
“We need to see a host of urgent measures to help businesses, including a reduction in the rate of VAT and lower business rates.”
Mike Grieves, chair of NTIA Scotland, said bars and clubs faced a “truly toxic mixture of reduced consumer confidence, lower disposable income due to the cost of living surge, in parallel with ever-increasing supply chain and wholesale costs for businesses”.
He added: “Without urgent fiscal intervention from government, particularly on VAT and non-domestic rates, plus a viable energy price cap for operators, there is a real and imminent risk of an epidemic of business failures across the whole nighttime economy in Scotland with significant job losses as a direct consequence.”
SNP MSP Natalie Don said the UK Government has “lost all control” of the economy, warning: “This interest rate rise will add more misery to everyone who is struggling due to the Tory-created cost-of-living crisis.”
