Hospitality takes a hit

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29 January 2024
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Sector accounted for 12% of UK administrations in 2023, analysis reveals.

THE hospitality industry accounted for 12% of administrations in 2023 – the third highest sector in the UK – according to analysis by full-service law firm Shakespeare Martineau.

The number of out-of-home servings of potatoes has been increasing steadily over the past decade, with chips being the 'go to' side order with many pub and restaurant meals, this is unwelcome news for potato suppliers. 

Out of the 1,641 businesses who filed for administration last year, 190 were from the hospitality industry. The overall administrations total was a 22% increase compared to 2022 and 91% rise in comparison to 2021.

Partner and Head of Restructuring at Shakespeare Martineau, Andy Taylor, said: “The cost of money, marked by high interest rates throughout 2023, exacerbates financial strains on businesses with models that thrived in a sub-2% interest rate environment. Organisations can only bear that pressure for so long before its sustained impact starts to wash through and they begin running out of cash.

“A shift in consumer buying habits, exemplified by a challenging January for the hospitality sector, adds to the narrative of subdued spending. Moreover, HMRC continues to be more active, with threatened enforcement pushing businesses towards considering their options, and many opting for administration as an alternative to being wound up on a compulsory basis."

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Hospitality, along with retail, construction, manufacturing and real estate were the worst-hit sectors. Regionally, Greater London led the way with 22% of the filings, followed by the North West (14%) and South East (12%), data from The Gazette Official Public Record has revealed.

While January (76) was the quietest month, administration numbers leapt to 177 in October – the most recorded for 43 months (185 in March 2020).
 
With administrations nearing pre-Covid levels (1,794), sustained difficult trading periods combined with rising geopolitical tensions means we could see more businesses failing throughout 2024, according to Andy.

“The significant uptick in the number of companies filing for administration in 2023 underscores the challenges faced by businesses amid changing consumer habits, financial pressures, and geopolitical uncertainties," he said.

Geopolitical tensions in Russia-Ukraine and Israel-Gaza have contributed to economic uncertainty and suppressed growth as businesses reliant on imports face increased outlays that have to be passed on to customers.

“Many predict the rate of inflation to continue its downward trajectory in 2024, perhaps even approaching Bank of England’s target of 2%. If that trend continues, one might anticipate something like three interest rate cuts in 2024, which will hopefully stimulate growth," said Andy.

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