How can hospitality businesses navigate high interest rates in 2025?

The Bank of England today announced that UK interest rates would be cut from 4.75% to 4.5%. This is welcome news to hospitality businesses, who have faced a turbulent few years since COVID-19 disrupted their industry. The sector has faced fluctuating demand, labour shortages, supply chain disruptions and rising costs, all while trying to recover from the financial impact of the pandemic.

Despite the relief brought by this rate cut, the UK’s persistently high interest rates remain a challenge for many businesses—with elevated borrowing costs continuing to put pressure on operating margins and investment plans.

In this article, we share practical advice to help hospitality businesses stay competitive and protect their profits in 2025.

What’s next for UK interest rates?

The Bank of England’s decision to reduce the base rate on the 6th February 2025 was an attempt to stimulate economic growth in a stagnant economic environment. But it doesn’t mean the challenges for hospitality businesses are over. Inflation remains a significant concern, particularly in areas like food prices and wages.

Economists are expecting three reductions during 2025, leaving the base rate at 4% by the end of the year. With uncertainty surrounding inflation and the possibility of economic volatility, hospitality businesses should focus on strategies that will allow them to remain flexible and resilient.

Five ways to navigate high interest rates

High interest rates can put significant pressure on hospitality businesses, increasing borrowing costs and impacting cash flow. But with careful planning and strategic adjustments, businesses can weather the storm—and even emerge better positioned for long-term growth.

Here are five strategies to help you mitigate high interest rates in 2025.

1. Optimise debt structures: Review your existing debt structures, making sure they’re managing both short-term and long-term borrowing effectively. By refinancing existing debt at more favourable terms, or consolidating high-interest loans into more manageable repayments, you can help reduce the overall pressure on your business.
2. Renegotiate terms with lenders: Engage with your lenders and explore the possibility of renegotiating the terms of your contracts. Hospitality businesses often face periods of lower demand or seasonal lulls, so you might consider renegotiating loan durations to ease monthly repayments. This can help unlock valuable cash flow that can be reinvested into your business during slower months.
3. Consider alternative financing methods: Traditional loans may not always be the best option for businesses during times of high interest rates. For hospitality businesses, alternative financing methods such as asset-based lending (where property or equipment is used as collateral) or government-backed loans might offer better terms. These options can ease the financial burden of high interest rates, helping you secure the capital needed for expansion and renovations, or cover short-term operational costs.
4. Focus on operational efficiency: It’s difficult to navigate economic uncertainty without streamlining your operations. For hospitality businesses, making smart investments in technology can lead to significant cost savings. For example, inventory management systems can help reduce waste, while automating booking processes can maximise efficiency. And it doesn’t have to be a large-scale transformation. Focusing on employee training can improve the quality of your services, which directly contributes to customer satisfaction and repeat business.
5. Diversify your revenue streams: To protect your profits during uncertain times, look for ways to diversify your revenue streams. This is particularly important for hospitality businesses that rely on high footfall or specific seasons. Expanding your services—such as by offering catering, hosting events or creating loyalty programmes—can help generate extra income. Consider introducing new products, like exclusive seasonal menus or retail items, to support your bottom line during periods of reduced consumer spending or rising operational costs.