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The UK hospitality industry – covering accommodation (hotels, B&Bs) and food services (restaurants, pubs, cafés) – remains a vital part of the economy. Official statistics put the sector’s gross value added (GVA) at £69.5 billion in 2023, around 2.8% of total UK economic output, while UKHospitality’s broader definition of the industry – which also takes in events, travel and recreation – puts annual GVA at £93 billion, an increase of £20 billion over six years. By September 2025, the narrower accommodation-and-food-services sector employed around 2.6 million people, 7% of all UK jobs and the sixth largest of the UK’s main industry sectors; on UKHospitality’s wider definition, the figure is 3.5 million, making hospitality the UK’s third-largest employer.
Recovery from the pandemic has plateaued: domestic tourism is stabilising below pre-pandemic volumes, while inbound visits are forecast to keep growing — VisitBritain forecasts 45.5 million inbound visits and £35.7 billion of visitor spending in 2026, up 4% in visits and 7% in nominal spend on 2025. Hotel-distribution data show average daily rates edging up and a small improvement in cancellation rates, both consistent with resilient demand for short domestic stays.
However, costs remain a real concern: energy and food cost inflation, alongside successive minimum wage increases, have squeezed margins. Sentiment surveys point to falling profitability and subdued consumer demand across hospitality and the wider consumer-services sector. Labour shortages have eased considerably — UK-wide vacancies have fallen by well over half a million since their March–May 2022 peak of 1.3 million, and vacancies in accommodation & food services stood at around 77,000 in the September-to-November 2025 quarter – but staffing and costs (energy, rent, business rates) remain leading worries for operators.
Overall, 2026 looks set to be a year of modest, uneven growth: inbound tourism is on track to exceed 2019 levels, domestic travel is holding up in volume terms even as spend per trip comes under pressure, and smart pricing and marketing – dynamic rates, shoulder-season packages – will matter more than ever.
SME owners should focus on revenue per guest and careful financial planning; resources such as Rise Funding’s guides on hospitality grants vs loans and top business growth strategies for 2026 can help with funding and growth planning.
Key Takeaways
- The UK hospitality sector is expected to see modest growth in 2026, driven by stronger inbound tourism despite continued pressure on domestic spending. Businesses that focus on maximising revenue per guest and adapting to changing travel patterns will be better positioned to protect profitability.
- Rising labour, energy, and operating costs continue to squeeze margins, making financial discipline more important than ever. Careful cash flow management, strategic pricing, and operational efficiency are essential for navigating the challenging trading environment.
- Hospitality businesses that invest in customer experience and smart revenue strategies are likely to outperform. Enhancing guest value through add-ons, dynamic pricing, and targeted marketing can increase revenue without relying solely on higher visitor numbers.
Table of Contents
Economic Contribution and Employment
The hospitality sector is overwhelmingly made up of small businesses and is a significant contributor to the UK economy. GVA stood at £69.5 billion in 2023 – about 2.8% of UK economic output – while UKHospitality, using its wider definition, calculates the sector’s annual economic contribution at £93 billion (up £20 billion over six years), alongside £54 billion in tax receipts, £20 billion of exports and £7 billion of business investment. On the narrower ONS measure, employment stood at 2.6 million jobs in September 2025 (7% of all UK jobs, the sixth-largest sector), with around 2.1 million payrolled employees in November 2025 — a fall of roughly 59,000 over the previous year. UKHospitality’s wider 3.5-million-job figure places hospitality behind only wholesale & retail and health & social care among UK employers.
Pay in the sector remains well below the UK average: in April 2025, full-time hospitality workers earned a median £14.04 an hour excluding overtime, against £19.67 across all UK full-time employees. The Low Pay Commission found that 21.6% of hospitality workers were paid the National Minimum or Living Wage in 2023/24, and successive increases to that wage – including the rise to £12.21 an hour from April 2025 – have added further to a labour bill that has, for many operators, been growing faster than turnover.
Recent Performance and Trends
After a sharp post-pandemic rebound, growth has clearly moderated, and month-to-month output remains volatile. ONS figures show accommodation and food service activities output fell 1.8% in January 2026, driven by a 2.7% drop in food and beverage service activities, in a month when the wider UK economy showed no growth at all. Such dips partly reflect seasonality (the post-Christmas lull in trading) as much as underlying weakness.
Hotel distribution data
Other indicators are steadier. Hotel-distribution data from SiteMinder, reported by UKHospitality, show UK average daily rate (ADR) rose from £189.00 in 2024 to £191.55 in 2025, while the cancellation rate edged down slightly from 18.27% to 18.24% — both signs that revenue per booked room is nudging up and bookings are sticking. The UK remains very much a short-stay market: around 80.5% of hotel stays are for a single night, one of the highest shares among the markets SiteMinder tracks, and domestic guests account for roughly 69% of check-ins. August remains the busiest month for check-ins, though October and December are gaining importance as seasonality gradually softens.
Domestic tourism
Domestic tourism volumes, by contrast, are recovering even as spend per trip weakens. VisitBritain’s Great Britain Tourism Survey found that British residents took 23 million domestic overnight trips in Q4 2025, up 5% on Q4 2024, alongside 226 million day visits, also up 5%. Total domestic tourism spend in Q4 2025 was £20.1 billion, on a par with a year earlier — overnight-trip spend was down 3% to £7 billion, while day-visit spend was up 2% to £13 billion [9]. Average spend per overnight trip fell 8% year-on-year to £312, a sign that even as Britons take more trips, household budgets are constraining how much they spend on each one.
Price growth in the sector has cooled from its 2022–24 peak. ONS data show the contribution of restaurants and hotels to overall CPIH inflation eased markedly through 2024 and into 2025 – by June 2025 it was the smallest such contribution since July 2021 – even as wider cost pressures from energy and labour continue to weigh on margins.
Consumer and Inbound Tourism Outlook
Inbound tourism is the brighter side of the demand picture. VisitBritain forecasts 45.5 million inbound visits to the UK in 2026, worth £35.7 billion in visitor spending – growth of 4% in volume and 7% in nominal spend (5% in real terms) on 2025. That would put visit volumes at around 105% of 2019 levels, though real-terms spending would still lag pre-pandemic purchasing power. Long-haul markets, including the US and parts of Asia, are forecast to grow faster than European arrivals in both volume and value terms, although VisitBritain has noted that its forecasts predate some recent geopolitical developments that could weigh on specific source markets.
For operators, the practical takeaway follows from the hotel-distribution data: with the large majority of UK stays being one-night visits, maximising revenue per guest – through breakfast and experience add-ons, loyalty schemes and flexible-stay packages – matters more than chasing volume alone. Dynamic pricing also continues to reward operators who read the calendar closely: Friday rates remain the highest of the week and January the cheapest month to book, so filling shoulder-season and midweek dates is where much of the achievable yield improvement lies.
Challenges Ahead
The sector faces clear headwinds through 2026. Cost pressures remain elevated: 21.6% of hospitality workers were paid the minimum wage in 2023/24, and the National Living Wage has risen in both April 2024 and April 2025. The Bank of England’s Agents, who gather business intelligence from contacts across the UK, reported in March 2026 that “business distress is most evident in hospitality, particularly among SMEs facing weak demand and cost pressures,” alongside slightly negative employment intentions across the wider economy, with many firms planning only to maintain current staffing rather than hire.
Cautious demand
Consumer demand has stayed cautious. The CBI’s quarterly Service Sector Survey for the quarter to May 2026 found that consumer services firms – a category that includes hotels and catering – saw profitability fall at its fastest pace since August 2020, as costs grew at their quickest rate in three years even as selling-price growth also accelerated; general business sentiment across the wider services sector worsened sharply over the same quarter. In December 2025, an ONS survey of businesses found that falling demand for goods and services was the top concern for 18% of hospitality businesses – in line with the rest of the economy, but a clear sign that household budgets are still constraining discretionary spending on eating out and short breaks.
Labour market
The labour market has loosened considerably since its post-pandemic tightness, though not without trade-offs. UK-wide vacancies have fallen by more than half a million from their March–May 2022 peak of 1.3 million; in accommodation and food services specifically, vacancies stood at around 77,000 in the September-to-November 2025 quarter, equivalent to roughly three vacancies per 100 workers against an all-industry average of 2.3. At the same time, payrolled employment in the sector has kept falling: early ONS estimates point to a drop of around 80,000 payrolled employees in the year to May 2026 – the largest annual decline of any UK industry sector. Much of this appears to be happening through natural attrition – not replacing leavers – rather than active redundancies.
Tax and regulation
Tax and regulation continue to shape the cost base. The industry has long called for a reduced rate of VAT on hospitality, but the standard 20% rate remains in place. From 2026/27, the government plans to introduce new, permanently lower business-rates multipliers for retail, hospitality and leisure properties, worth close to £900 million a year, replacing the temporary relief scheme that has applied since 2020/21. Employer National Insurance contributions also rose in April 2025; the Bank of England’s Decision Maker Panel found that firms responded mainly by lowering profit margins, rather than the larger price rises or staff cuts many had originally expected to make. For SME owners navigating this combination of higher labour costs and partial rates relief, access to finance and grants remains important – resources such as Rise Funding’s guide to hospitality grants vs loans can help identify funding options.
Strategic Takeaways
Despite these pressures, the sector’s underlying fundamentals – strong consumer interest in travel and eating out – support a cautiously optimistic outlook. Inbound tourism is forecast to grow further in 2026, and the domestic short-stay market that dominates UK hotel bookings (over 80% one-night stays, around 69% domestic guests) continues to provide a steady base of demand, even as spend per trip comes under pressure. Visiting patterns have also diversified beyond the traditional summer peak, with August remaining busiest but shoulder months gaining share – a trend operators can plan around with earlier, more targeted marketing.
Many operators are focusing on quality and experience to justify pricing, packaging stays with extras such as breakfast, flexible checkout or local experiences to lift revenue per guest without raising headline rates. Given continued pressure on wages, energy costs and business rates, careful financial management remains essential: maintaining cash buffers, reviewing supplier contracts, and budgeting for the well-documented post-Christmas trading dip should all be part of routine planning. Resources like our 10-step business planning guide can help SME hospitality owners align day-to-day operations with this more cautious, cost-conscious market.
A stable but cautious outlook
In summary, the UK hospitality industry in 2026 is stable but not booming. Output has mostly normalised after the post-pandemic rebound but remains volatile month to month; inbound tourism is on track to exceed 2019 levels, while domestic trip volumes are recovering even as spend per trip falls; and cost pressures – wages, energy, business rates and weak consumer-services profitability – mean margin management will matter as much as topline growth this year. Operators who track official statistics (ONS output and labour-market data, VisitBritain’s tourism releases) alongside industry surveys from UKHospitality, the CBI and the Bank of England, and who price and market with the shoulder-season, short-stay reality of the UK market in mind, will be best placed to protect margins through 2026.
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