Is Brexit being used as a scapegoat for the current UK hotels growth slowdown?

10 April 2018

By Liz Hall, Head of Hospitality & Leisure Research, PwC UK

The answer is yes and no, i.e. it’s a bit complicated.

First, let’s look at no (it’s not an excuse). Our latest UK economic outlook shows that perceived Brexit uncertainty is dampening UK GDP growth, despite a strong global economy (global growth is expected to be around 3.8% versus UK GDP growth of 1.5% this year). This weaker growth is expected to persist in 2018. Our latest hotel sector forecast explores the impact of this on the demand for both business and leisure tourism, as GDP growth and demand for travel go hand in hand. Weaker UK economic growth is also likely to depress growth in room prices - a good thing for guests, not so much for hoteliers. But of course, it’s not just domestic GDP that’s important in driving travel - GDP in key inbound markets is also important.

Turning to yes (it’s not just Brexit slowing things down). There are other factors driving weaker hotel sector growth. Surely, stronger global growth should help cushion inbound travel and, with economic growth so strong in key overseas markets and the pound still relatively weak, shouldn’t we be seeing record numbers of overseas tourists flocking to the UK? Well, yes and we did see record tourism numbers in 2017, until around October, when the boost to leisure tourism from the weak pound appears to have ‘fizzled out’. Will growth pick up later in the year?

There’s also the impact of the above-average supply of new hotels in London, which we expect to depress hotel metrics this year, as around 9,000 new hotel rooms could open in London, more than we saw in the peak Olympic year of 2012. That’s a lot of new hotel rooms to fill, even if demand is strong, which it isn’t. This theme isn’t unique to the capital, as cities across the country are also seeing new supply.

It’s not all gloom - there’s lots of good news too; we have a very successful hotel sector; we have a Royal Wedding in May, the Farnborough International Air Show in July and plenty of unique sporting events. But is it enough to rescue what looks like a very challenging year ahead for hotels? We continue to forecast growth but at a weaker pace in 2018 than we saw last year and we believe slower economic growth is a key factor.

See Michael Moore's article - Beyond Brexit - why now is the time for businesses to act

Liz Hall
Head of Hospitality & Leisure Research, PwC UK

Tel: +44 (0) 7714 064861