Summer 2025 will be remembered for years to come. The return of The Open to Portrush marked a highlight for local golf fans. But the hottest summer on record is perhaps more noteworthy.

Perfect conditions for the local tourism and hospitality industry?

In true economist fashion…yes and no.

Hoteliers posted a 6% rise in room sales in June relative to the same month last year. Indeed, June 2025 represented the highest number of rooms sold post-Covid. 2019 was a record year for hoteliers with over 2.3 million rooms sold. That figure could well be eclipsed this year but it is unlikely to trigger any celebrations.

Record highs in hotel occupancy rates / room sales are one thing, record profitability is quite another.

As the mercury pushed higher this summer, so too have running costs – notably labour and food costs.

In sports such as rugby, the phrase ‘hospital pass’ refers to a badly timed pass to a player likely to be tackled heavily as soon as the ball is received. The implication being the player who receives the ball may end up in hospital, or at least, be injured.

Last October the chancellor threw a ‘hospitality pass’ with ‘the hit’ occurring in April.  Rachel Reeves surprised employers by hiking their national insurance contributions and lowering the threshold when the tax kicks in.

The timing couldn’t have been worse, coinciding with another chunky rise (+6.7% y/y) in the National Living Wage (NLW). The latter has increased by close to 50% since 2019 and has almost doubled for those aged 16-18 years of age.

Not surprisingly job losses and restaurant closures are picking up. Unlike other lower paid sectors such as retail, the hospitality sector’s ability to automate and replace staff is more limited. Since last October’s Budget, more than half of the job losses that have occurred in the UK have been in the hospitality sector.

Rising food costs are a growing concern for households and the hospitality sector.  The weekly / monthly grocery bill is becoming notably more expensive again. Food prices rose by 4.6% y/y in July – their fastest pace in 17 months. Whilst this isn’t the painful double-digit food price rises, we experienced in 2022/23, it is the level of prices that are squeezing households. Food prices have risen by 22% and 37% over the last three and four years respectively.

Some food and non-alcoholic drinks have posted double-digit increases. Beef (+24.3%), coffee (+18%), butter (+17.8%), chocolate (+17.2%) & whole milk (+11.3%) recorded the largest year-on-year increases in July. Meanwhile other staples such as meat (+6.1%), breakfast cereals (+5.1%) and eggs (+4.9%) witnessed significant rises too. Coffee and chocolate prices have increased by a whopping 41% and 49% respectively over the last 4 years.

Will we see security tags appearing on coffee and chocolate products in our supermarkets anytime soon?

These increases are due to a variety of factors, international and domestic.  Rising agricultural commodity prices(e.g. wheat, dairy & cattle) have risen by 8% y/y which is almost three times the typical annual rate.

Adverse weather conditions at home and abroad have impacted on some agricultural commodities and foodstuffs. Drought in Brazil has led to poor harvests of coffee beans and hitting supply whilst increased demand from China has pushed up prices. Meanwhile too much rainfall in the Ivory Coast – the largest producer of cocoa – has damaged crop yields triggering a surge in the price of chocolate.

Cattle prices have increased by 20% due to dry weather conditions limiting the growth in grass and requiring cows to be fed silage early. This has led to increased production costs of beef and dairy.

The hottest UK summer in record will also impact on the price and quality of homegrown grown vegetables such as broccoli and cauliflowers.    

Domestic factors fuelling food price rises include increased labour costs. UK food manufacturers and retailers have seen annual wage growth of 7% and 7.6% respectively. According to the Bank of England the NLW and employers’ national insurance contributions have added 1-2% to UK food prices.

Food price inflation is expected to accelerate from 4.6% y/y to around 5.5% by the end of the year. The introduction of the Extended Producer Responsibility (EPR) scheme adds a further cost to food producers. This is due to the responsibility for dealing with the waste management of packaging passing from local government to the firms producing the food packaging. Affected firms in the UK will receive their first invoices in October.

The EU will launch a similar scheme in August 2026. These packaging regulations will affect all firms but disproportionately those dealing with food and drink.

Food accounts for almost £1 in every £7 of Northern Ireland household expenditure, as opposed to £1 in every £9 spent in the UK. The more that is spent by households on food the less discretionary spending is available for the local hospitality sector to attract.

More establishments will struggle to ‘play on’ following the hits to their bottom line from the NLW, rising food costs and Rachel Reeves’ hospitality pass. Similarly, squeezed household budgets and the rising cost of eating out and ‘meeting up for a coffee’ could see more consumers pass on hospitality.