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Economic bursting point: Leisure and customer-facing businesses hammered

16 June 2021

The inevitability that the British government would keep its narrative alive by extending the lockdown restrictions past yet another agreed exit date has resounded with the investing and business communities insofar as the markets have remained in a similar condition to that of prior to the backtracking mumblings from Number 10. The FTSE 100 index and the British Pound are both buoyant and remain at similar levels to how they did prior to the government's anodyne, Groundhog Day-esque announcement that the curtailments on businesses and personal liberties would be extended, however that is largely down to two factors.

The first factor is that businesses across all sectors in the United Kingdom have become accustomed to the ever-changing direction that the government takes, with public opinion now not so reactive to the graphs and presentation slides shown by the same three men every few weeks with the same slogan on the yellow signage adorning their speaking platforms.

It may well be the case that big corporations with close ties to the government and massive resources are nonchalant, but the often forgotten elephant in the room here is the small to medium sized business sector, especially that which faces customers and relies on footfall and attendance for its bread and butter.

It is quite astonishing that the hospitality sector has managed to survive long enough under lockdown to allow its leaders to continue to look forward to any slight glimmer of hope that the lock-and-key obsessed British government may allow them to operate again one day rather than them realizing that it is time to throw in the towel, cut losses and either open elsewhere or move into a different business given that one and a half years is one heck of a long time to be denied the basic opportunity of doing any form of normal business.

It is common knowledge that running a catering or restaurant business, for example, is a labor-intensive, resource-hungry business with a high cost base and requires constant customer presence to make it viable. Just 10 years ago, an accountant told me that any buiness that serves retail customers, including shops, hotels and restaurants, is only 6 weeks away from bankruptcy, meaning that it would only take 6 weeks of no customers on average, for a business in the retail sector to run out of resources.

Yet here we are, a year and a half later, and whilst there have been a huge amount of casualties, some hospitality businesses are looking to reopen, their hopes in vain.

The current impact on the hospitality sector according to many experts looking at the broader economic picture in the UK is that they don’t think the four week delay will have too much of an impact on recovery. The jobs market continues to improve with unemployment down to 4.7 per cent in the three months to April, from 4.8 per cent previously, but that is a very overall picture. The reality is that the retail and hospitality sector, which in the UK which is reliant on a tertiary service-based economy, has been absolutely hammered, and now, with no end in the restrictions to the normal business activities of that sector, Bounce Back Loans will have to be repaid with monthly repayments beginning this month as well as more time with reduced revenues.

The UK hospitality and tourism industry employs 4.49 million people which equates to approximately 10 per cent of the working population according to a study that was conducted in April this year by Oxford Economics. It has also been a growth area until the government began meddling.

Between 2010 and 2015, one in five of all new jobs in the UK wsa in the hospitality and tourism sector. That amounts to 331,000 new jobs, and hte contribution to the national economy wsa £143 billion per year. Youth unemployment was also kept down with 60,000 apprenticeships, work experience placements and jobs for young people which were created by the end of 2016 via the Big Hospitality Conversation Initiative.

That boom has turned into a government-enforced bust, and yet the true damage to the economy has not yet been counted. Today, travel and hospitality stocks are down. Hotel chains Whitbread (-1.8%) and Intercontinental (-1.6%) were also hit by disappointment that the final swathe of restrictions will continue for longer. The smaller FTSE 250 index, which is more UK-focused, closed marginally higher. Fast casual restaurant chain Restaurant Group, which owns Wagamama, Chiquito and Frankie and Benny’s, fell 4.3% while pub chain JD Wetherspoon dropped by almost 4%, as traders anticipated a longer wait before they could end social distancing restrictions. Perhaps this is the beginning of the era of big government and big corporations.

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