October’s GDP figures have been branded as “extremely worrying” for the UK service sector as businesses grapple with a slump in consumer confidence.
Kate Nicholls, chief executive of UKHospitality, said: “Today’s figures are extremely worrying and show just how fragile the UK economy remains.”
Data from the Office for National Statistics (ONS) revealed the UK economy contracted by 0.1% in October. This marks two consecutive months of negative gross domestic product (GDP) growth for the first time since the pandemic.
Ms Nicholls said: “The economy shrinking in October reflects a concerted slump in consumer, business and investor confidence. This was before the Budget, which dealt businesses yet more costs, the consequences of which are still to come.”
According to ONS, the contraction was influenced by a decline in activity within the hospitality sector, with pubs and restaurants experiencing a notably weak month.
Industry experts have suggested that uncertainty in the lead-up to the Autumn Budget compounded the challenges faced by the sector.
Ms Nicholls continued: “The changes to employer National Insurance Contributions (NICs), particularly the lowering of the threshold, hits hospitality disproportionately hard and has already slammed the brakes on any investment decisions, which are much-needed to drive growth.”
Chancellor Rachel Reeves acknowledged the “disappointing” GDP figures and reiterated the Government’s commitment to growing the economy and helping families feel “better off with more money in their pockets.”
She said: “The numbers on today’s GDP are disappointing, but it’s not possible to turn around more than a decade of poor economic growth and stagnant living standards in just a few months.
“Growth is the number one mission of this Government – economic growth that results in families feeling better off with more money in their pockets – and we’re driving that economic growth and we hope that those numbers will start to improve because of the policies that we’re pursuing in the months ahead.”
Despite this, Ms Nicholls emphasised the urgent need for policy adjustments, stating: “We are continuing to urge the Government to rethink its decision to go ahead with this damaging change in its current form, and instead work with industry on alternatives that mitigate the impacts on businesses, team members and economic growth.”
A coalition of major UK retailers, including Tesco, Amazon, John Lewis, and Aldi, recently warned that the Budget could lead to job losses, higher prices, and store closures.
Starting in April, businesses will face higher National Insurance Contributions (NICs), costing British retailers an additional £2.33billion annually. A £2.73billion increase from the minimum wage hike and a new £2billion packaging levy are also set to raise costs significantly.
The retailers cautioned that these combined factors will push up living costs, slow wage growth, and result in job losses, particularly in entry-level positions. They stated that “the sheer scale of new costs and the speed with which they occur create a cumulative burden” that makes these outcomes inevitable.
Kate Allen, owner of Devon-based luxury lettings company, Finest Stays said: “The new Employers’ National Insurance banding makes hiring additional staff look about as appealing as running headlong into a tax wall.
“We’re more inclined to outsource to freelancers now, as the potential savings outweigh the red tape and financial risks. Customer spending habits have shifted noticeably. Fewer people are booking UK holidays, and lead times keep shrinking, which only amplifies the strain.
“We introduced a £50 deposit to secure bookings, and while that has eased some short-term cashflow concerns, there’s no escaping the fact that real or perceived drops in spending power have taken a bite out of our bottom line. A genuine pro-growth strategy—not half-measures—would go a long way in buoying both business confidence and the wider economy.”
While the Autumn Budget hasn’t immediately affected the operations at Bear, an independent coffee house, kitchen and bar chain, finance director Alex Cross said the business is preparing for “significant changes” in April.
He explained: “The rise in the National Minimum Wage, changes to Employers’ NI banding, and reductions in Business Rates Relief will heavily impact costs in the hospitality sector, particularly for people-focused businesses like ours.
“We remain committed to delivering the quality and experience our guests expect, but these pressures mean price adjustments may be unavoidable. While footfall is likely to remain stable, we’re aware guests may trade down on their choices, which could affect revenue.”
He added: “To support businesses like ours, we’d welcome a reduction in VAT for hospitality, helping us manage rising costs while keeping prices competitive. Extending business rates relief would also provide vital breathing space for operators. At BEAR, our focus remains on people – our team, guests, and communities – but the right Government support is essential to help us navigate the challenges ahead.”
Craig Bunting, co-founder at Bear, added: “I can’t control GDP, but I can control the experience we deliver to our guests. As a brand, we’re entrepreneurial and nimble enough to navigate these challenges, but as Alex has pointed out, the Government has a vital role to play in supporting the hospitality sector and the incredible impact it has on people and the places we operate.”
