The NLW rise has garnered a mixed response from the UK hospitality industry. Credit: spectrumblue via Shutterstock.

The UK government has agreed that the national living wage (NLW) will rise in April 2024, driven by the strength of pay growth across the economy.

While this is a boon for hotel workers across the nation, Shore Capital has looked at the increase in pricing across the hospitality sector and exposure to wage pressures on a number of UK hospitality stocks.

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The working assumption is a 3% to 4% rise to rebuild margins and offset continuing inflation.

Whitbread, the owner of Premier Inn, remains strong with an attractive earnings before interest, taxes, depreciation and amortisation margin. The company is anticipated to hit £40m, with well-capitalised stocks and a good post-pandemic performance.

Shore Capital asserts that a back-to-work budget, supported by the rise in the NLW, could help relieve some labour availability issues, whilst structurally higher wages may boost consumer demand.

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There is also an expectation of continued investment in operational efficiency measures, including automation and digitisation, whilst higher costs will likely lead to a further industry-wide capacity reduction, especially from independents.

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Industry body UKHospitality chief executive Kate Nicholls commented that the NLW rise “will have significant knock-on impacts on costs as businesses struggle to maintain appropriate wage differentials across all of their staff, including at more experienced levels.

“Without action on business rates tomorrow, many businesses will not even make it to April to deliver these wage increases and jobs will be lost. In the longer term, stronger consideration needs to be given to a lower rate of VAT for hospitality to create a more sustainable tax burden for a sector that employs 3.5m people and delivers £93bn to the economy.”