MANCHESTER, England — After winning the general election held in the United Kingdom in July, the ruling Labour Party will unveil its first budget at the end of the month, which should give business leaders and hoteliers an idea of the new government's direction.
Hope always comes with a new government, and the U.K. voted in the Labour Party this summer following 14 years of Conservative Party rule. New Prime Minister Keir Starmer indicated that he and his government would not flinch from making hard and possibly unpopular decisions.
During a panel discussing the outlook for the U.K. at the Annual Hospitality Conference, Robert Shrimsley, U.K. chief political commentator and executive editor at the Financial Times, said the first two months of the new government contained “all the joy and optimism of a Leonard Cohen song.”
He said economists and government ministers are waiting for the Labour Party's first budget on Oct. 30 to get a better idea as to the direction of the country.
“[Ministers] are waiting to see what they will have to spend,” he said.
Shrimsley said his budget predictions are that there will be financial boosts for infrastructure and digital and an increase in capital gains tax, with the government promising in its election campaign not to increase income, corporation and value-added/sales taxes.
“They said they will not increase employee National Insurance contributions but note they have always said that with the word ‘employee’ in there. Maybe they will increase employer [National Insurance] contributions,” he said.
In the U.K., employees’ pension pots receive income from both the employees’ salaries and a contribution of varying scale from their employers.
Shrimsley also predicted that the new government would likely announce a labor-movement deal, probably for younger workers, between the European Union and the U.K. That would be music to ears of British hoteliers, who have long relied on staffing from continental Europe.
He said the U.K. could expect more government state intervention, which would include more devolution for the regions and countries of the U.K. and more power to its mayors.
UK hotel performance highlights
Hotel performance has been steady in the U.K. despite periods of high inflation and lower consumer spending.
Thomas Emanuel, director of CoStar’s hotel-analytics division STR, said he felt very confident of hotel performance in the U.K. and that the country is in a “privileged position.”
Among the G20 nations in terms of occupancy percentage, U.K. hotels lead the pack in year-to-date performance data through August.
“That is just about equally divided between international and domestic guests, and we’re still growing. Yes, by 1%, but that is from a high bar,” Emanuel said.
Edinburgh, the capital of Scotland, has seen hotel average daily rate in that same period increase by 11%.
“Edinburgh literally has a license to print money currently,” Emanuel said.
By comparison, average daily rate growth has been flat in London and up 2% for the entire U.K., he added.
Liverpool, meanwhile, reported the starkest decline at 5%, due to the city hosting Eurovision in August 2023.
Another cloud is that U.K. hotel performance on weekends was diminishing, which Emanuel attributed to the “return of the price-sensitive traveler.”
That might result in more empty rooms on Fridays and Saturdays, especially as London also leads Europe's hotel pipeline, with a further 99,000 keys in some form of construction or opening, he said.
Manchester and Edinburgh are also seeing hotel pipeline growth. But Emanuel added that if every hotel room planned for Durham — in northern England — opens, its hotel supply will increase by 18%.
Bigger state
Recent economic numbers are a further indication of brighter times ahead, said Sebastian Burnside, group chief economist at bank and financial firm NatWest Group. U.K. gross domestic product at has grown 3% year over year.
“It grew more in the first six months of 2024 than economists thought it would across all 2024,” he said, referring to the period when the Conservative Party was still in power in the first half of the year.
But not every sector in the economy is blazing its entire arsenal, Burnside said. The U.K. hospitality industry has been challenged since February 2020, while professional services have rebounded much quicker.
He added that on the British High Street, the pandemic led to the closing of 924 pubs and 752 hairdressers in the last few years. But there has been an increase of barbers by 665 and nail salons by 254.
Shrimsley added that after the newspaper-headline antics of the previous Conservative Party government, especially under former prime minister Boris Johnson, the U.K. is enjoying a period of political stability.
Starmer “unapologetically sees the state as a force for good,” Shrimsley said.
There will be political jitters, Shrimsley added.
He said he felt the Labour Party is nervous because it understands the huge task it has, especially as it campaigned on the country being “broken” under the previous government.
Burnside said such nervousness likely is a result of real incomes having been hit hard by recent increases in inflation and interest rates, which has reduced discernible spending.
He gave one non-hotel industry example of how that is panning out.
“Re-mortgagers are trading down from premium to value supermarkets,” he said.