• UK consumers under pressure

Data released in the past few weeks in the UK indicates that consumers are coming under increasing pressure, as both the consumer confidence index and services sector output fell.

The issue is one that brands such as Premier Inn have already raised concerns over, with Whitbread  acknowledging the environment as "challenging". And consultancy PricewaterhouseCoopers believes London should be able to maintain growth but conditions are difficult in the provinces.

While it had been expected that consumers would feel the hangover after the extended break around the Royal Wedding, GfK NOP reported that its UK consumer confidence index had slipped to minus 25 in June from minus 21 in May – lower than at any point in 2010.

The services sector output in the UK fell 1.2% in April from March, the biggest fall since January 2010, although, for hotels and restaurants, it rose by 0.9%, as a result of the break and warm weather. However, Howard Archer, economist at IHS Global Insight, cautioned: "The danger is that service-sector activity will be limited appreciably over the coming months by muted consumer spending and the cutbacks in government spending."

With inflation increasing, the slow pace of the recovery is forcing consumers to think twice about spending and appetite for taking on debt – if they can get it – is weak. According to data released last week by the Bank of England, net consumer credit was weaker than expected, rising by £200m in May, half the average monthly increase over the past six months.

"The spectre of falling real wages and high unemployment is putting households under immense pressure and they are choosing to cut back, rather than attempting to subsidise their spending through credit," said Nida Ali, economic adviser to the Ernst & Young Item Club.

Last month analysis by the Financial Times of official data found that the UK economy was set to experience the slowest pick-up in consumer spending of any post-recession period since 1830, something which will look even more likely after last week's data.

For the hotel sector, it has been the business traveller which has pulled it out of the worst of the downturn, and with the government eager to look overseas for its recovery, the UK must place itself as an attractive destination, both for travellers and investors. While so far the weakness of the pound has been an advantage, if issues in the Eurozone worsen, this could change. 

The market is also looking at government spending cuts and attempting to assess how they will have an impact, with conferencing business in particular suffering.

In a study released by PricewaterhouseCoopers, trading was found to be strong in London, outperforming the regions, where rates fell, but there was felt to be volatility ahead.

Liz Hall, head of hotel research at PwC, said: "There remain plenty more headwinds to confront and much to worry about that could derail the sector's progress. Consumer confidence remains fragile; there is further possible fallout from the ‘Arab Spring' and much uncertainty and potential unrest around global commodity prices including oil; supply too may dampen hotel performance pre and post the Olympics. So looking ahead hoteliers could have their work cut out."

 

HA Perspective: With both consumers and governments deleveraging, it was always a tough ask for the economy to suddenly rebound after the recession. There remains a huge financial hangover with debt burdened consumers, companies and governments.

The big hope for hoteliers is that corporate profitability holds up and companies continue to invest for growth. Corporate demand is the bedrock for most hotels and if this keeps growing slackening leisure demand will not be too damaging. 

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