Thoughts on headline UK economic performance and domestic GBTS third quarter 2023 results.

Posted on February 16, 2024 Updated on February 16, 2024

Wednesday’s announcement that January’s inflation rate held steady at 4% against December’s rate, itself an unexpected marginal increase, was somewhat disappointing.  As was yesterday’s announcement that the UK economy had slipped into a technically recession (two negative quarters in succession) in the latter half of 2023, although thankfully at a very shallow level.  As ever these monthly and the latest quarterly estimates are subject to later revision, either way, as more detailed data becomes available.

Despite the disappointing news, the general consensus remains that the economy is still recovering from, among other things: inflation, increased interest rates, higher fuel and energy costs and a cost-of-living crisis, albeit, now it seems, recovering at a marginally slower pace than previously predicted or hoped for.   In response to the inflation rate announcement, and clearly already aware of recessionary announcements about to be made, the Governor of the Bank of England (BoE) suggested on Wednesday that expectations in some quarters of an early cut in the base rate was premature. 

BoE’s base rate remains the key tool in managing inflation and achieving the Government’s and the BoE’s target of 2% inflation. Returning to the glory days, of a pre-mid 2022 sub 1% base rate (2009 to May 2022) isn’t currently even an aspiration, with something in the order of 4% base interest rate being a more realistic 5-year (and well beyond?) ambition.  Interest rates are the key tool in managing the economy because for the vast majority they dictate how much disposable income is left in the average household’s pocket after unavoidable living costs, like mortgages, are covered and, hence, what can be spent on discretionary activities.  In its turn suppressed demand acts as, among other things, a break on inflation and higher wage demands.   As we are all only too well aware, discretionary activities and discretionary spending encompasses every aspect of the visitor economy from a pint or meal out to events, shows, theatre, through to days out, short breaks and longer holidays and much of the ancillary spending that it all entails. The visitor economy unfortunately sits in the eye of the now slowly waning economic storm.

Greater minds than mine and yours can agonise over the detail and the twists and turns of their implications of the headline economic news for the wider UK economy. For our purposes in domestic tourism, it is probably sufficient to note that the recovery is still underway but, as we had long since  determined, it isn’t going to reach the tipping point at which the cost of borrowing and the cost of energy, goods, supplies and services for both consumers and businesses and wage pressures on business are going to fall sufficiently far, or sufficiently fast enough to generate the levels of disposable income needed to trigger a marked improvement in the overall performance for the coming 2024 shoulder and main summer seasons, over and above the performance experienced in 2023. For 2025, perhaps but too early yet to call? Meanwhile, there is attitudinal evidence that main, often overseas holidays, are being prioritized, and increasingly, if necessary, at the direct expense of other, usually domestic based, visitor economy activity. A potential double whammy for the domestic industry?

Less disposable income can but doesn’t necessarily always mean markedly lower visitor volumes but it generally does mean restricted activity, shorter duration and all most always less or more carefully target spending (value). Consumer confidence is also critical factor.  Confidence tends to lag someway behind the economic reality. While this year the certain prospect of general election and the political manoeuvring and uncertainties these generate and then magnifies, also tend to add to public uncertainty and further dent consumer confidence. Unless and until there is much more positive economic news and more political clarity, consumer confidence is likely to remain unusually subdued during 2024.

Certain individual businesses, certain sectors, certain destination types or locations, did of course do relatively well in the internal domestic tourism market in 2023.  While, worryingly and at some yet indeterminant direct cost to the UK’s visitor economy, domestic outbound tourism values and volumes recovered strongly toward, or in some case to, or beyond 2019 levels. This said, it is indisputable that many other (the vast majority?) of domestic tourism businesses did rather less well in 2023 than the during the immediate post-covid domestic spike and certainly less well than they needed to do in order to sustain a fragile recovery to anything like pre-covid levels or, critically, to make good their own more recent additional costs.

The hard evidence to support these assertions, is like much else in tourism, currently thin on the ground, but there is plenty of anecdotal evidence to suggest and hard evidence slowly emerging, that investment in all aspects of business is being curtailed from: promotion through staff numbers and training, to refurbishment and development. Measures like adopting shorter hours, opening on fewer days of the week, deploying fewer staff when open and/or a general return to old patterns of seasonality are all on the increase.  These are the very things that the domestic tourism industry, the National Tourist Boards and Government and Government Departments have worked to try to address and rectify over the last 20 plus years. Worryingly many of these potential “knee jerk” but necessary measures undermine the tourism industry’s contribution to the economy and local employment. That isn’t good news from a national lobbying, let alone from the real world local economic prospective.

If the legacy of the post-covid and recent economic crisis is to catapulting the domestic offer back, even in part, to its pre-2000 (pre mid 1990s?) state, then that would be a local, regional and national social and economic disaster.  Fixing the economy as soon as practically possible is clearly a key part of the solution, but also addressing some well-known and longstanding structural and policy issues that have become more, rather than less critical since the 2020 covid pandemic wouldn’t now go amiss. I will not bore members and others with the full list as hopefully you are as, if not more, aware than I am of the key national strategy and policy weaknesses. If you are unsure, then please ask me.

If the problems of a weaker or truncated and, therefore, less appealing offer are as wide spread as we suspect (know but can’t yet formally evidence), then that this is a serious retrograde step for the domestic tourism industry. Another generally lacklustre season for the average tourism/visitor economy business, in the average destination, targeting the average demographic and average UK customer is not particularly good news for the ubiquitous tourism industry, nor is it, good news for the multitude of local visitor economies underpinned by tourism and, thus, nor is it good news for the UK in general as it struggles with economy recovery. Whether the current or any other Westminster Government will have the wisdom to understand that fixing the economy in general is only the first step needed to fully fix the domestic tourism industry, remains to be seen. 

The very real prospect of a major change in Government does give us a once in a decade or two, opportunity to revisit and refresh some of the longstanding strategic issues.  For example, Treasury’s insistence on regarding domestic tourism as a general economic displacement activity and therefore seldom worthy of targeted publicly funded support.  Or specifically their reluctance to understand that the choice isn’t a simple false dichotomy between spending money somewhere in the visitor economy in the UK or spending the same money on something, somewhere else in the UK economy, ergo no real loss or gain to the UK as a whole and therefore no real grounds for public intervention for domestic tourism.  Since as early as the mid 1970’s it has been a trichotomy with a strongly competing and a far more logical alternative to either spending on tourism or other things at home; that of spending your annually allotted tourism pounds in the visitor economies abroad. The sums involved in outbound domestic tourism have now grown so large that even a few percentage point shift in favour of purely domestic activity would make a significant difference to local and UK’s economic performance.

Accepting, as we must, that some but by no means all of the money spent by UK residents (an estimated £58.5bn in 2022 alone) ended up being retained in the UK by a number of generally large and well placed UK based companies including: travel agents, travel companies and some air and sea transport providers, there remains an obvious and very large economic issue. Surely no sane Government, particularly in a new post Brexit environment, should ignore clear opportunities to try harder to retain more domestic tourism domestically? Unfortunately, to my knowledge at least, largely ignoring it is precisely what has been happening and by slow but fairly regular increments increasingly so over the last three decades.  

By a rather timely coincidence, the key 2023 third quarter Great British Tourism Survey Results (GBTS) have just been published.  Figures for domestic overnight tourism in Scotland, Wales and England taken across the board show that less volume was generally achieved in these key main summer holiday months of July to September in 2023 as compared to 2022. However, notably while year to date volumes held real, as opposed to nominal unadjusted, values generally fared less well.  The performance is worrying, albeit given the thrust of some of my comments above, hardly unexpected.

Rather than me detailing or trying to analysing the GB and home nation variations within that, I would urge colleagues to find the time to look at either the VB/VE statistics for GB and England which include English regional break downs, or the equivalent Visit Wales or Visit Scotland reports as appropriate. As ever I was struck by the scale and, I feel, the underappreciated role and, potentially therefore, the under exploited value of Visiting Friends and Relatives (VFR).  In economically challenging times VFR may have a potentially greater role in driving much needed ancillary spend noting of course that VFR does automatic or always equate to staying with relatives and friends.  

The full report itself (containing links for Scotland and Wales data) can be accessed at: https://www.visitbritain.org/research-insights/great-britain-domestic-overnight-trips-latest-results .

For your immediate reference the summary paragraph from the VB/VE report is copied below: 

In Q3 2023, there was a decline in domestic overnight trips compared to Q3 2022, the trips were shorter and the spend on these trips was lower. 2023 YTD figures show also a decline in visits and real spend vs 2022, although to a smaller extent.

Great Britain

• In Q3 2023, there were 35.7 million overnight trips in Great Britain (down 4% vs Q3 2022) made by British residents between July to September 2023. These trips lasted a total of 112.2 million nights (down 9% vs Q3 2022) and contributed a total of £9.6bn in spend (down 7% vs Q3 2022). • In Q3 2023, British residents spent on average £268 per their domestic overnight trip (down 3% vs Q3 2022) and £85 per night of their trip (up 2% vs Q3 2022). Their trip in Great Britain lasted on average 3.1 nights (down 5% vs Q3 2022). • 2023 year to date (YTD) Great Britain visits were down 1% on 2022 YTD, with spend up 2% in nominal terms, although down 6% in real terms. The number of nights down 7% on 2022 YTD. • In terms of trip purpose of overnight trips in Britain in Q3 2023, visiting friends and relatives remained fairly in line with Q3 2022 (just 1% down), while holiday trips declined by 12% (despite the decline, keeping the largest share, 37% of all Great Britain overnight trips).

England

• In Q3 2023, there were 29.8 million overnight trips in England (down 5% vs Q3 2022) made by British residents between July to September 2023. These trips lasted a total of 92.3 million nights (down 9% vs Q3 2022) and contributed a total of £7.8bn in spend (down 10% vs Q3 2022). • In Q3 2023, Great Britain residents spent on average £262 per trip in England (down 4% vs Q3 2022) and £85 per night of their trip (down 1% vs Q3 2022). Their trip in England lasted on average 3.1 nights (down 4% vs Q3 2022). • 2023 year to date (YTD) England visits were down 2% on 2022 YTD, with spend up 1% in nominal terms, although down 7% in real terms. The number of nights down 6% on 2022 YTD. • In terms of trip purpose of overnight trips in England in Q3 2023, visiting friends and relatives remained fairly in line with Q3 2022 (just 1% down), while holiday trips declined by 15% (despite the decline, keeping the largest share, 36% of all England overnight trips).

Note: All value comparisons are in nominal terms, not taking inflation into account, unless otherwise stated. Great Britain Tourism Survey – VisitEngland, VisitScotland and Visit Wales