Spending boom signals UK on-trade growth

Consumer spending in the pubs and restaurant sector has been accelerating in the first half of this year and is set to grow even more quickly in 2016, 2017 and beyond, according to predictions from Capital Economics, the respected independent forecasting agency.

In its quarterly Consumer Analyst, it says that the latest monitored figures show like-for-like spending in pubs and restaurants grew by 0.9% in the first quarter and by about 2% between April and June.

Even so real spending (after allowing for inflation) in pubs and restaurants is still 10% below the level seen just before the recession hit in early 2008 so “there is still scope for considerable ‘catch up’ growth in this sector”, especially as disposable incomes are growing at their fastest rate in 14 years.

Once they have met their essential bills, people spend more of the extra cash in their pockets on leisure activities, especially at a time when very low interest rates offer little incentive to save.

Spending in pubs and restaurants rose by 3% in 2014 and will grow by 3.5% this year, the agency says. It predicts it will then grow by 4.5% in 2016 and by 6% or more in the subsequent years to the turn of the decade.

According to Capital Economics’ forecasts, pubs and restaurants will be among the most buoyant sectors in the British economy over the next few years as real wages continue to rise and inflation remains low. And drinks retailers are also likely to enjoy cheaper import prices due to the strength of sterling, notably against the euro.

To some extent those benefits will be reduced by continuing heavy competition in the off-trade but overall the outlook is better than for a number of years as consumers’ real incomes will continue to grow even when interest rates start to rise.

There are widespread fears that staff costs in both the off- and on-trades will rise sharply next April when the national living wage of £7.20 an hour comes into force. Many pubs and restaurants pay their staff only the current national minimum wage of £6.50, rising to £6.70 in October.

However, Capital Economics points out that the national living wage rate applies only to those aged 25 and above and that many pubs and restaurants employ mainly younger people, especially students, so the new rate will not apply to them. It also predicts that many outlets will switch to using under-25s purely to keep their wage costs as low as possible.