🍻Cost pressure threatens hospitality recovery

LEISURE
Cost pressure threatens hospitality recovery

What’s going on?
Yesterday hospitality group Mitchells & Butlers posted a second straight year of losses and warned that rising costs pose a challenge for the whole sector.

The owner of pub and restaurant chains including All Bar One, Harvester and Toby Carvery, reported revenue of £1.1bn for the 12 months to September, 10% down on the year before.

Why is this important?

Since the high street reopened after lockdown the leisure industry has been fighting to recover to pre-Covid levels. 

Mitchells employs 44,000 people across 1,700 sites and cut 1,300 jobs in 2020 due to reduced trade.

Although the group made a loss of £42m in the past year, this was better than the £123m loss it posted the year before.

Encouragingly weekly sales since August are now 3% higher than the same period in 2019 with suburban areas performing better than city centres as workers stay closer to home.

But challenges remain on the horizon. Like many companies it’s facing rising energy, food and staff costs as supply chain issues plague the economy.

Mitchells says that to protect profits it will pass on the higher costs to consumers. However the price increases would not be 'eye-watering' as the company would look for savings elsewhere.

Takeaway
Narrowing losses and recent sales trends shows that Mitchells is on the road to recovery. However rising inflation could be a stumbling block if price increases turn customers away.

The Christmas office party season is a crucial period for the company but it expects that companies will opt for smaller and more suburban events as Covid concerns remain. 

PROPERTY
Housing (un)affordability reaches record high

If you’re looking to get on the property ladder, then you may want to look away now. 

Buying a home has become even more out of reach to first time buyers, that’s according to the latest data from the Nationwide Building Society.

In the third quarter of this year, the ratio of first-time buyer house price to earnings was 5.5, above the previous record of 5.4 in 2007, and well above the long run average of 3.8.

Londoners face the toughest challenge with buyers needed 9 times their salary to get on the property ladder. Scotland has the best affordability with homes worth an average of 3.4 times earnings.

House prices rose quicker than wages over the last year. This was driven by record low interest rates which made mortgages more accessible and the stamp duty holiday that propped up the property market during the pandemic.

Nationwide also found that a 20% deposit is now equivalent to 110% of average income – another record and up from 102% one year ago.

So is there any good news for first time buyers? The Bank of England is expected to increase interest rates to combat rising consumer prices soon. 

This would increase the cost of mortgages which could apply the brakes to rising house prices.