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Interest rates in the restaurant industry
ollowing the Bank of England’s recent statement claiming that interest rates are unlikely to rise above 3% in the next decade, restaurants up and down the country will be questioning the impact this will have on their business. The impacts of these low interest rates will affect restaurants in two main ways: impacting the business directly as well as impacting restaurant customers, thus having a knock-on impact on the restaurants themselves.
The rate of interest has a large overall impact on the restaurant customers, with the predicted low interest rates being likely to have a positive impact upon the restaurant industry. When interest rates rise, customers pay more on personal loans and mortgages therefore having a lower disposable income to spend on luxury activities such as going out for meals. Naturally this can be seen as a negative consequence on the restaurant industry as it is inevitable that the public are going to reduce their time eating out. So, when interest rates are low, the opposite effect can be seen to take place. Higher disposable incomes, increased spending and a greater willingness to eat out.
Furthermore, these low interest rates could lead to a lower incentive to save, therefore making them more likely to spend their disposable income. When interest rates were at their highest in the UK in 1989 at 15%, the saving rate featured at 12%, whereas following the financial crash of 2008 where interest rates reduced to around 1%, the saving rate also reduced to 4.4%. This direct correlation should provide an optimistic standpoint for restaurants in coming years.
From the restaurants point of view, nearly all small restaurants need to borrow money to invest in their business. When interest rates are high, these loans become more expensive to pay off therefore businesses are going to carry debt for longer and as a result end up paying more than if interest rates are lower. Jamie Oliver’s chain of restaurants, “Jamie’s Italian” is falling victim to the cost of rising debt because of interest rates. Even at a mere 2%, the Businesses debt is rising by £1.4 million per year. The popular restaurant chain is managing to stay afloat, but a rise in the UK’s interest rate could lead to a differing fate for Oliver and his group of Italian restaurants.