How Will Brexit Impact on the Hospitality Sector?

by Sean Bryant on July 18, 2017

While Brexit has impacted the British economy and financial markets in numerous ways, most economists have chartered it through the fluctuating value of the pound. After months of sustained devaluation and ever-decreasing trading ranges, the currency is set for further decline and poised to fall lower against both the U.S. Dollar (USD) and the Euro (EUR) during the next three months.

This is not the only consequence of Brexit, however, especially now that Article 50 has been officially triggered by Prime Minister Theresa May. In fact, Brexit will continue to take its toll across numerous industries and marketplaces, while its impact becomes more pronounced before the negotiations between Downing Street and Brussels begin in earnest.

3 Ways in Which Brexit Will Hit the Hospitality Sector?

The hospitality sector is no exception to this rule, so let’s take a look at three ways in which Brexit will continue to hit this industry in the months ahead.

Brexit Will Have an Impact on the Hospitality Labor Market 

Let’s start with the industries labor market, which at present is dominated by migrant workers and employees from the EU. In fact, entertainment, leisure, hotel and restaurant businesses in the UK employ in excess of 400,000 EU migrants, while the average five-star hotel is thought to be represented by a total of 50 nationalities.

In this respect, the hospitality industry is largely driven by EU treaty provisions, which allow for the freedom of movement between member state borders and enable individuals to seek employment without a work permit or visa. Given that the UK government are pursuing a so-called ‘hard Brexit’ and willing to sacrifice free trade in exchange for total control of their borders, however, we should expect the hospitality job market to decline significantly in the near-term.

Much will depend on the exemptions offered to existing EU migrants, of course, but some businesses may struggle to sustain themselves or their range of services in the months ahead.

The Devaluation of the Pound Will Cause Travel Prices to Rise 

We have already touched on the fact that Brexit will cause the sustained devaluation of the pound, and this also has a key bearing on the hospitality sector.

This applies outside of the UK too, as hotels on the continent may see a decline in demand among UK citizens as many are discouraged from travelling by unfavourable exchange rates. Since the referendum vote, the decline of the pound has been chartered by various sources, and as it continues to trade in a narrow range against other major currencies the cost of travelling will increase further and for the foreseeable future.

The Cost of Domestic Travel and Leisure Activities Will Also Increase

Some may argue that there is a potential upside to this, as a weak pound will make it cheaper for overseas residents to travel to the UK. These gains may be offset by other issues, however, including significant price hikes and the rising cost of staffing establishments.

So even if visitors to Britain can benefit from improved exchange rates, the rising cost of imports may force establishments to raise their prices in order to remain profitable. This could deter potential travellers in volatile economic times, while it will also impact on UK residents who are looking to enjoy competitively priced vacations.

On the subject of labor, hotels and restaurants in particular may also be forced to absorb higher costs as they look to employ a higher proportion of UK nationals. These costs will also translate into higher price points, which will only have a negative effect on consumer confidence and hinder the economy over time.

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Sean Bryant

Sean Bryant created OneSmartDollar.com in 2011 to help pass along his knowledge of finance and economics to others. After graduating from the University of Iowa with a degree in economics he worked as a construction superintendent before jumping into the world of finance. Sean has worked on the trade desk for a commodities brokerage firm, he was a project manager for an investment research company and was a CDO analyst at a big bank. That being said he brings a good understanding of the finance field to the One Smart Dollar community. When not working Sean and he wife are avid world travelers. He enjoys spending time with his daughter Colette and dog Charlie.

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