The hospitality sector's trading performance has stabilised following the acute cost pressures of 2023 and 2024, but net margins across restaurants, pubs, hotels and contract catering businesses remain at their lowest sustained level in over two decades, according to UKHospitality's spring quarterly report published this week.
The trade body's analysis, drawn from financial data submitted by member businesses representing approximately 750,000 hospitality employees, paints a sector that has survived the post-pandemic inflation cycle but has not recovered from it. Revenue per available seat, covers per service and average spend have returned to, and in some categories modestly exceeded, pre-COVID levels. But the cost base against which those revenues are set has risen substantially and permanently.
"Revenue recovery is real," said UKHospitality chief executive Kate Nicholls. "Margin recovery is not. These are two very different things, and it is important the government understands the distinction when it considers policies that affect our cost base."
The Margin Picture
The report estimates average net margins for full-service restaurants in the UK at 3.2% — compared with 6.8% in 2019. For pub operators, the figure is 4.1%, down from 7.3% pre-pandemic. Hotels fare somewhat better at 8.6%, though the figure is heavily skewed by the performance of luxury properties and hides a more acute position in the budget and mid-market accommodation sector.
The drivers of the compression are well-documented: food cost inflation running at 18% above 2019 levels even after recent stabilisation; energy costs that remain elevated despite the retreat from 2022 peaks; and the cumulative effect of National Living Wage increases that have added approximately 33% to minimum wage costs since 2022.
The report notes that businesses have absorbed much of this cost pressure through menu price increases that have outpaced general consumer price inflation — hospitality prices rose an average of 14.7% between 2022 and 2025 against a CPI backdrop of 11.3%. But consumer response to those increases has not been uniformly accommodating. Visit frequency among the 25–44 demographic — the sector's core spending audience — has declined by 8% from pre-pandemic levels, partially offsetting the per-visit revenue gains.
The April Risk
The report identifies the National Living Wage rise to £12.21 on 1 April as the most significant near-term risk to operator viability, particularly among smaller businesses that do not have the purchasing scale or operational leverage to offset the increase without further price rises.
For a business where 70% of the workforce is on minimum wage — typical for a quick-service or fast-casual operation — the April increase adds approximately 6.7% to the wage element of the cost base overnight. On a labour cost that represents 35% of revenue, the effective impact is a 2.3% increase in total costs with no corresponding increase in customer spend.
UKHospitality is renewing its call for the government to introduce a reduced rate of employer National Insurance contributions for hospitality businesses and to accelerate the business rates reform process that was announced in 2024 but has not yet produced material relief for the sector.
Green Shoots
The report is not uniformly negative. Several indicators are moving in a more constructive direction. Consumer confidence, as measured by GfK's monthly survey, has risen for three consecutive quarters and is approaching levels that have historically correlated with increased discretionary spending. Staff vacancy rates in hospitality — which reached a crisis point of 176,000 unfilled positions in 2022 — have fallen to approximately 82,000, reflecting both improved recruitment and a reduction in the number of businesses trading at full capacity.
The events and private dining sector, which was among the most severely affected by the COVID closure period, has recovered strongly and in some subsectors is operating above 2019 levels. Corporate hospitality, in particular, has returned at a pace that has surprised operators who had expected hybrid working to produce a permanent reduction in mid-week business entertaining.
"The sector is resilient — it always has been," Nicholls said. "What it needs now is a period of cost stability. The April wage rise makes that stability harder to achieve. We need the government to recognise that and act accordingly."
The full UKHospitality spring quarterly report is available to members on the association's website.