Fitch Ratings’ outlook for the UK pub sector remains negative and it says there are new drivers of ongoing structural decline.

According to a report by, the ratings agency also believes there has been a slight increase in the number of ratings on negative outlook since the 2015 pub sector review.

Fitch said it expects that the financially pressed 18-35 age group may curtail UK pubs’ revenues over the medium term. Rising student loans, together with higher costs of living result in drinking and eating out being less affordable.

It believes that cultural changes, partly driven by millennials, may also be shifting consumption towards lower volumes of higher quality craft beers with production increasing over the last few years, whereas total on-trade beer volumes have reduced.

Fitch also expects the rise in the living wage announced in the 2015 budget to dampen managed pubs’ profitability. The rise in the wage bill, which makes up a significant portion of total opex, is expected to put significant cost pressure on managed pubcos such as M&B and the managed divisions of Greene King, Marston’s and Spirit.

It expects a lesser impact on wet-led tenanted pubcos as they generally employ fewer staff.

Additionally, Fitch sees a potential slowdown in organic revenue growth as estates move towards being fully invested. The route for future profit growth seems to be mostly attainable through acquisitions. Fitch therefore sees further consolidation as increasingly likely.

Other ongoing issues include falling on-trade sales and total alcohol consumption over the longer term, the MRO announced in March 2015 and the EU referendum.

In reaction to increased labour costs, Fitch expects that the low-skilled labour market in the UK will become increasingly automated over the next decade.

Fitch said this could provide a short-term benefit to pubcos that may be able to preserve their margins. However, Fitch perceives some related longer-term risks as a widespread reduction in income levels and greater unemployment could suppress consumer spending.