As the Bank of England announces a rise in interest rates, we hear from Lionel Benjamin, Co-Founder at AGO Hotels, about the effect on the events industry.
On 2nd February, the Bank of England announced that interest rates would rise to 4%, a further 0.5%. This announcement comes after interest rates were raised from 3% to 3.5% just two months ago.
The Bank of England said of the rise: “The Committee has voted to increase Bank Rate by 0.5 percentage points, to 4%, at this meeting. Headline CPI inflation has begun to edge back and is likely to fall sharply over the rest of the year as a result of past movements in energy and other goods prices. However, the labour market remains tight and domestic price and wage pressures have been stronger than expected, suggesting risks of greater persistence in underlying inflation.”
“The hike of interest rates to 4% may be a necessity to curb inflation, though the impact on the industry is not good news,” says Lionel Benjamin. After an unwelcome but necessary move for many events industry businesses, many are already struggling with the rising cost of operating: “The sector is grappling with several challenges, specifically rising energy prices and third-party suppliers upping their prices in line with inflation. AGO Hotels have seen overall costs rise to an average of 43% from 36% over the last six months. Today’s announcement means a further tightening of the purse strings with spending needing to be managed particularly carefully, especially as these additional costs cannot make their way to the consumer.”
The rise in interest rates will affect the industry on a massive scale – especially for those businesses just starting out – as investors become more hesitant to risk capital: “Interest rates are impacting deals in the market. There has been a slowdown in transactions as investors evaluate the impact of interest rates on the cost and availability of debt. We are also seeing a debt funding gap as lenders adopt a view of declining real estate values versus pre- pandemic levels.”
However, despite the difficulty ahead, Lionel believes that the industry will remain robust and weather this new challenge as it has so many others in recent years: “The sector held its own in 2022 with some record growth in rate and occupancy, this performance recovery may stall as we face uncertainty in the market and operational costs continuing to rise. However, the sector remains of significant interest to the long-term investors who understand the cyclical nature of the industry.”With a further rise in interest rates is on the cards later in the year, the events industry continues to face ongoing challenges since the start of the COVID-19 pandemic. This latest trial is one that the industry will weather like so many before it.