New Economic Report Says Sector To See Slower Growth In 2020

The accommodation and food services industry will be amongst the most disrupted as a result of Brexit, according to the latest UK Powerhouse study by law firm Irwin Mitchell and the Centre for Economics & Business Research (Cebr).

The report’s unique ‘Brexit Disruption Index’ analyses which industrial sectors will be affected most after the UK leaves the EU.

It bases its predictions by analysing the change to three key indicators - the free movement of labour, tariffs on exports to the EU and investment into the UK from the EU – and assumes that a deal will eventually be agreed.

Accommodation and food services has an index score of 35% but the report still expects the sector to grow by 1.9% in this year and by 1.5% in 2020.

The report says the accommodation and food services sector can potentially benefit from an increase in tourism, driven by a falling pound which would follow a disorderly Brexit. A lower exchange rate has already made travelling to the UK cheaper for tourists and contributed to a boost in the number of visitor. 

It points to travel data firm ForwardKeys, which says summer flight bookings to the UK from long-haul markets were 6% higher this summer than in the same period last year. The rising number of visitors will in turn increase demand for accommodation and food services in the UK.

Brexit does however pose some difficulties for the food services industry. It says that approximately 30% of all food consumed in the UK is imported from the EU and in some cases the EU is the UK’s sole provider. 

The report highlights that the Food and Drinks Federation has called on the Government to suspend or waive competition laws in the event of a no deal Brexit, in order to allow businesses to work together and coordinate the delivery of goods. It adds though that even with a deal, food services could face delays in delivery when importing foodstuffs from the EU. 

It says that new standards on food production will also need to be implemented by the UK government, though there is potential for the government to broaden its ties with other countries that previously did not meet EU standards in this industry.

Expert Opinion

“The effect of the Brexit process has mainly positive consequences for the food and drink sector in the short-term. In addition to the benefits of tourism, there has also been a recent influx of investment from both the US and Hong Kong based funds into freehold based leisure businesses. This is through both disruption in the Chinese market, trade war issues where money is looking for a safe haven but mainly UK based investments looking cheap due to the political turmoil and cheap pound.

“There are in the medium-long term, however, significant challenges, specifically in relation to skills shortage for the hospitality sector. The hospitality sector has, for a number of decades, relied upon migrant labour and recent surveys have shown that the number of EU national applying for hospitality roles has declined markedly over the last 2-3 years. Wages are on the rise as the supply of quality ‘hospitable’ people dries up, and the back-of-house jobs; chefs, kitchen staff, cleaning staff, which have always been challenging to recruit for, will almost certainly get worse.”
Stuart Gallyot - Consultant

Marina Mensah-Afoakwah, Senior Economist at Cebr said:

“As the UK approaches the next Brexit deadline, all options are still on the table. With or without a deal, Brexit it set to be disruptive to the economy, at least in the short term, with varying levels of disorder expected across the different sectors in the UK. 

“The Brexit Disruption Index presented in this report shows which parts of the UK economy are most exposed, analysing each sectors’ reliance on EU labour, trade and foreign direct investment. 

“There are some advantages that Brexit will bring to the accommodation and food services sector, particularly in relation to tourism, but the fact that 30% of foodstuffs are imported into the UK from the EU, means the sector has significant challenges in the future.”