Tourism and recreation businesses continued to recover in April, following the relaxation of Covid-19 restrictions, but inflation and rising costs are already starting to have an effect, according to research.
The first Lloyds Bank UK Sector Tracker said the sector – which includes pubs, hotels, restaurants and leisure facilities – posted its third consecutive month of output growth, with firms recording the second fastest rate of growth of all 14 UK sectors monitored by the Tracker in April.
However, there were early indications that inflation has started to erode purchasing power and dampen consumer demand, according to the UK Sector Tracker – an evolution of the Lloyds Bank UK Recovery Tracker.
Tourism and leisure firms reported an unprecedented rise in input costs in April, driven by higher transport, material, energy and salary expenditure.
The sector registered 91.4 on the Tracker’s Input Price Index – the sharpest rate of cost inflation in 24 years of the tracker’s underlying data.
Against this backdrop, nearly two-thirds (63%) of firms raised prices charged to customers, leading the sector to post a record 72.9 on the Tracker’s Prices Charged Index.
Annabel Finlay, managing director and head of food, drink and leisure at Lloyds Bank Commercial Banking, said: “UK firms have continued to benefit from consumers, at home and overseas, looking to travel and embrace leisure activities again after so many months living under Covid-19 restrictions.
“However, there are early indications that consumer confidence is waning – a factor that could lead to more conservative spending, and future falls in demand. If inflationary pressures remain, many businesses face a dilemma.
“As this month’s data show, the sector is battling elevated cost inflation, with firms, understandably, adjusting the prices charged to customers to help rebuild margins. How much they can do so without further negatively impacting demand will be a key consideration going forward.
“Ultimately, future demand will depend on the degree to which consumers consider travel and leisure spending as core or discretionary.
“It’s possible that we will witness divergences in demand trends across the economy, as those who have accrued ‘excess’ savings continue to spend, while those with lower incomes exercise greater caution.”