Hospitality sector inflation has climbed above the national headline rate, indicating persistent cost pressures on restaurants, hotels, pubs, and bars despite a broader easing in inflation across the economy. According to the latest Office for National Statistics (ONS) data, while overall Consumer Prices Index (CPI) inflation dropped to three per cent in the year to January 2025, food and restaurant inflation increased from 3.8 to 4.1 per cent.
Stubborn Cost Pressures in Hospitality
Economists have welcomed the decline in headline inflation, which may prompt a Bank of England interest rate cut. However, hospitality industry leaders warn that the sector's challenging year in 2025 continues to cast a long shadow. Allen Simpson, chief executive of trade body UK Hospitality, emphasized that businesses are likely to pass rising costs onto consumers, even as overall inflation eases.
"While it's welcome that headline inflation has eased to 3%, today's figures show that hospitality continues to face stubbornly high cost pressures," Simpson told City AM. "Despite some easing in food and energy prices, businesses are still grappling with high food and drink inflation and the prospect of significant increases in business rates."
Government Action Needed
Simpson called for government intervention to support the sector, which plays a crucial role in job creation and community growth across the UK. He urged reforms to business rates and a balanced wage policy that considers the sector's capacity to absorb rising costs. "If the government wants hospitality to continue creating jobs and driving growth in communities across the UK, it must act to reduce costs," he stated.
Food Inflation Trends
Although food inflation has consistently outpaced headline price growth, this marks the first time since February of the previous year that hospitality inflation has overtaken the headline rate. Food inflation saw a significant drop, falling from 4.5 to 3.6 per cent year-on-year between January and February. However, food price growth remains higher than the overall inflation rate, driven by accelerated price increases for pasta (1.2 per cent), fish (1.2 per cent), and fruit (2.4 per cent).
In contrast, prices for bread and cereals (down 0.04 per cent), meat (0.02 per cent), and hot drinks (0.01 per cent) rose at a slightly slower pace compared to the previous year. Matthew Allen, an economics lecturer at the University of Salford, noted that these everyday expenses are felt most acutely by consumers. "Food prices and hotel costs remain elevated, and these are everyday expenses that consumers feel most acutely," he said. "For many households, particularly those on fixed incomes, the cost-of-living pressure hasn't disappeared, it has simply softened."
Impact on Overall Inflation
Investec's analysis of Wednesday's inflation figures highlighted that the increase in restaurant and hotel prices prevented overall CPI from dropping further. This underscores the sector's significant influence on the broader economic landscape. As hospitality businesses navigate high costs and potential rate hikes, consumers may face continued price increases in dining and accommodation, even as other areas of the economy show improvement.
