Update on the leisure sector

Total net leisure spending jumped three percentage points to -7% in Q1 2022 compared to -10% in Q4 2021. In Q4 2021 the emergence of the Omicron variant meant that the leisure sector was faced with consumers weary of all public gatherings or socialising and unable to go abroad due to strict travel restrictions and bans. The uptick in consumer spending this quarter coincided with the lifting of all COVID restrictions in the UK and a loosening of travel restrictions in some key tourist destinations.

Compared with the previous quarter, in Q1 2022 net spending was up in 9 out of the 11 leisure categories tracked in our survey. While the nine categories also experienced growth compared with the same period a year ago, that was when the UK was in a strict lockdown and the ability of consumers to engage in any leisure activities outside of their home was extremely limited. The two categories that saw a downturn in consumer spending compared with the previous quarter were betting and gaming (-1 percentage point) and in-home entertainment (-5 percentage points). In contrast, long breaks and eating out saw the biggest quarter-on-quarter spending increase – up eight percentage points, respectively. The results reflect consumers’ desire to get out of their houses and enjoy experiences and socialising with friends and family after a series of restrictive measures over the last two years.

For those consumers that can afford it, holiday bookings were high up the agenda in the first quarter. This was in part driven by school half-term breaks but also by the loosening, or even the entire removal, of COVID-19 entry requirements in many popular international destinations.

While consumer confidence and sentiment towards disposable income fell this quarter, a number of factors suggest that overall consumer spending on leisure will continue to increase, even as real earnings decline.

Rising employment, higher house prices and still low interest rates support consumer spending and not all consumers rely on earned income to finance spending. Some can draw on built-up savings, or can fund spending by borrowing, having paid down credit card and other consumer debt over the last two years. Given their ability to save more during the pandemic, higher income households are likely to account for a disproportionate share of spending this year. If higher income spending remains strong, it would bring a much-needed boost to the travel and hospitality industry as it continues its recovery.

Holidays are high up the agenda for consumers, with net spending forecasted to increase in Q2 2022 compared to Q1 2022 on both long holidays (up eight percentage points) and short holidays (up seven percentage points). June’s Diamond Jubilee bank holiday weekend should also see a welcome uplift to domestic tourism.

Although the prospects for the sector look good, the recovery is fragile and a number of factors could undermine consumer spending. For example, consumers could reconsider their holiday spending intentions if significant travel disruption on the roads, at airports or seaports continue. Spending on foreign travel is still at the mercy of local COVID restrictions which can be changed at short notice, creating an additional administrative burden for holidaymakers. Even minor changes in local COVID restrictions related to testing or vaccine status can have an impact on some tourists’ ability to enter the country.

Economic uncertainty could also supress consumer spending on leisure. The sector is faced with inflationary pressures that will not only be weighing on consumer spending intentions, but also drive an increase in operating costs for businesses. Compounding a difficult two years for the sector, operating margins are now under extreme pressure as businesses have had to deal with rising costs in food, drink, energy, labour and other key inputs. At the same time, the sector has been grappling with supply issues, staff shortages (in part related to COVID-19 absences) and the withdrawal of government support schemes. In addition, from 1 April, hotels, restaurants and other hospitality firms have had to start paying business rates again, as well as VAT at the full rate of 20%, following the reduction to 5% at the start of the pandemic and later 12.5%. Small businesses in particular will struggle to absorb all of these costs, meaning that some price rises will inevitably be passed on to the consumer at a time when they are already struggling with the cost of living.