Key highlights
- International tourism remains a key growth driver, with a forecast of 45.5 million inbound visits and £35.7 billion in visitor spending in 20261.
- International sporting events have delivered a significant trading boost, increasing footfall, food and drink sales and trading hours for many hospitality operators.
- Hotels have performed well, particularly in regional cities, although rising operating costs continue to squeeze margins.
- Business rates reform took effect in April 2026, with smaller hospitality venues benefiting from lower multipliers while larger hotels and leisure sites face raised costs.
- Martyn's Law preparations are bringing risk management and operational resilience into sharper focus.
- Cyber threats and workforce pressures remain prominent concerns heading into 2027.
The first half of 2026 has delivered a mixed outlook for the UK hospitality and leisure sector.
Early estimates predicted modest growth and sustained domestic tourism in the country. That baseline still holds true. Yet it masks a widening gap between resilient, well-capitalised operators and those constrained by historic overheads. This latter group of businesses is having an impact on overall sector profitability.
Many operators are now welcoming increased footfall, only to find gains offset by higher wages, increased National Insurance contributions, rising business rates and elevated energy costs2. For smaller businesses, the challenge is maintaining margins.
The sector remains a major contributor to the UK's GDP. Accommodation and food service businesses support around 2.6 million jobs, and of the 176,000+ operators, small businesses represent the overwhelming majority3.
How tourism and travel support the sector
International travel remains one of the strongest tailwinds for the sector, helping to sustain growth across the UK hospitality and tourism industry.
Industry insights suggest there will be 45.5 million inbound visits and £35.7 billion in visitor spending during 2026, representing a growth of 4% and 7%, respectively, compared to 20251. This continued increase in visitor activity is expected to push tourism spending above pre-pandemic levels in nominal terms, providing a significant boost for hotels, restaurants, attractions and entertainment venues.
The benefits of this growth are also being felt beyond traditional tourism hotspots. As domestic and international visitors increasingly seek cultural, sporting and leisure experiences across a wider range of destinations, regional cities have attracted a greater share of tourism spending. This geographic spread of demand has helped support local economies and hospitality businesses at a time when many other consumer-facing sectors have faced more subdued spending patterns.
The summer of sport: A vital revenue engine
International sporting events have had a large impact on hospitality trading, particularly over the summer period, hence generating a combined economic impact worth billions of pounds. Between May and July alone, these events contributed a £7.6 billion net economic uplift4, while attracting hundreds of thousands of visitors and generating more than £224 million in additional spending5. The increased demand translated into a 9.3% rise in food and beverage revenues, delivering an estimated £4.2 billion windfall for the sector4.
The strongest gains were felt across pubs, bars and live-screening venues. Hospitality establishments experienced unusually high footfall. The British Beer and Pub Association (BBPA) estimated that pubs sold an additional 30 million pints, generating approximately £150 million in extra sales6.
Hotels vs the high street: A widening gap
While profitability remains under pressure, hotels have reported stronger trading results than many other hospitality subsectors so far in 2026.
In the first quarter of 2026, the UK hospitality industry witnessed a revenue per available room (RevPAR) growth of 1.2%, while several regional markets significantly outperformed the national average7. Interestingly, Oxford, Edinburgh, Glasgow and Cardiff recorded RevPAR growth exceeding 5%, supported by tourism, events and business travel8.
Revenue growth wasn't limited to room sales. Hotels also reported stronger earnings from food and beverage operations, leisure facilities and other guest services. Yet many operators continue to report margin pressure as payroll costs and business overheads increase.
The high street tells a different story. Community pubs and independent restaurants are struggling to remain solvent. The BBPA recorded 161 permanent pub closures in the first quarter of 2026, while the final closure figure was 336 pubs for 20259.
Consumers are becoming increasingly mindful of their spending habits. Operators are seeking to balance cost inflation with customer retention by such means as restricting menu price increases and absorbing additional cost pressures to sustain demand.
Shifting demands: 'Hypermixity' and wellness
To counter consumer hesitation, resilient businesses are fundamentally rethinking their offerings. There is a structural shift toward 'hypermixity', a flexible setup in which hybrid models combine hotels, coworking spaces and short-term rentals. This is rapidly becoming an industry standard.
Wellness tourism is now a booming global industry with some hotels and leisure operators introducing yoga, spa treatments and health-conscious dining into their core packages. While this drives premium pricing, it also introduces complex new liabilities such as guest injuries during wellness activities and treatment-related incidents to dietary and allergen exposures.
Regulation moves higher on the agenda
Several policy developments are reshaping the operating environment, as businesses seek greater certainty around long-term costs and investment conditions.
Business rates reform came into effect in April 202610. As a result, smaller retail, hospitality and leisure properties have benefited from lower tax rates, while larger hotels and leisure venues face higher costs under the revised structure.
At the same time, employers continue to adapt to changes introduced by the Employment Rights Act. These include expanded worker protections and statutory entitlement reforms. Organisations are also preparing for forthcoming measures affecting zero-hours contracts and workforce scheduling.
Discussion around additional sector support has also intensified. Proposals to reduce VAT for hospitality businesses, and targeted relief measures for pubs, clubs and music venues, reflect growing recognition of the financial pressures affecting operators.
Evolving risks and resilience planning
The industry's risk profile is becoming more complex. As a result, businesses are having to grapple with several key challenges.
- Martyn's law compliance: The Terrorism (Protection of Premises) Act 2025 is now in its implementation phase. Hospitality, leisure and entertainment venues are actively reviewing security procedures, staff training and incident response arrangements accordingly.
- Cybersecurity threats: Connected property systems and automated payment gateways expand attack surfaces. Businesses face growing threats from phishing, third-party vulnerabilities, and AI-enabled fraud, with ransomware and booking engine breaches posing an immediate, potentially damaging risk of business interruption.
- Labour shortages: The hospitality sector currently reports one of the highest skills-gap rates in the UK economy. This is heightened by tighter immigration requirements that reduce access to overseas talent.
- Climate risk: Greater London experienced notably higher temperatures and more incidents of extreme heat alerts than historic averages11. Flooding also remains a significant threat to businesses: In the last few years, more than six million properties across England were in flood-risk areas12. For hospitality and leisure businesses, these climate risks can translate into operational disruption, property damage, higher energy costs and increased pressure on employee wellbeing. Severe weather events may also affect visitor numbers, disrupt supply chains and lead to temporary closures, making resilience planning and effective risk management increasingly important.
For many operators, resilience planning is no longer simply a compliance exercise. It's becoming a commercial necessity.
Turning risk management into a competitive advantage
To protect profitability, operators are turning to artificial intelligence (AI) as a core operational tool. Smart building systems are reducing utility costs by adjusting lighting and HVAC (heating, ventilation and air conditioning) based on real-time occupancy. Predictive inventory software is helping commercial kitchens comply with the UK Environment Act's strict new mandatory food waste tracking rules.
Risk management plans are essential for leisure businesses. For comprehensive cyber cover, underwriters now ask for definitive proof of multi-factor authentication, segmented network security and rigorous backup protocols.
Environmental, Social and Governance (ESG) compliance operates on a similar principle. Compliance with UK sustainability disclosure requirements now directly influences valuation and financing terms.
Future expectations
The outlook remains cautiously positive for the remainder of 2026.
Tourism demand is expected to remain supportive as consumers continue to value experiences despite economic pressures. Investment in digital engagement, AI-enabled operations and experience-led hospitality continues across the sector.
The sector's next major test will be the Christmas trading period. Recent festive trading data showed that while consumers remained selective about discretionary spending, they continued to spend more on meaningful social occasions, longer visits and premium experiences. For hospitality and leisure businesses, the year-end period is expected to remain a critical contributor to annual revenues, particularly across pubs, restaurants, hotels and entertainment venues.
Activity-led operators such as golf courses and botanical and zoological gardens reported growth, reflecting continued consumer demand for outdoor, wellness and experience-based activities. This trend is likely to create opportunities for businesses that can offer memorable, value-driven experiences rather than competing on price alone.
Cost pressures, labour expenses, regulatory change and cyber risk are expected to remain challenges. However, opportunities to strengthen revenue and profitability persist. Looking into early 2027, consumer spending is expected to continue shifting towards experience-led offerings, wellness-focused hospitality and flexible leisure concepts.
At the same time, the growing demand for local and spontaneous travel is expected to support the UK staycation market, benefiting destinations and operators well-positioned to capture domestic tourism demand.
A focus on productivity, workforce stability, operational resilience and strategic risk management will help businesses achieve success.
How Gallagher can help
As hospitality and leisure businesses prepare for the busy festive trading season, now is a good time to take stock of the risks and opportunities ahead. From evolving regulation and cyber threats to workforce and weather-related challenges, reviewing your insurance and risk management arrangements can help ensure they remain aligned to your business needs.
Our specialists can support you as you navigate the remainder of 2026 and plan confidently for 2027.
Talk to our team today.
