Tanja Lister is addressing her fears of a looming recession one dinner plate at a time. “We spent about £3,000 on new crockery,” she explains. She has been running the Kylesku hotel, a former coaching inn perched on a wild peninsula in Sutherland, north-west Scotland, with her partner, Sonia Virechauveix, for a decade. “Other people might have made a different decision, but for us it was important that we weren’t sending out a bowl with a chip in it so that people really enjoy their experience.”

In addition to the colourful crockery, diners can enjoy panoramic views across Loch Glendhu and an ultra-local menu that this week includes hogget from Drumbeg and Ullapool crab. Boosted by a recent refurbishment and extension, as well as the hotel’s proximity to the phenomenally popular North Coast 500 road route, Lister has been reaping the rewards of Scotland’s high-end and sustainability-conscious tourist boom.

Last autumn, however, she noticed a change in customer behaviour that demanded a swift change of strategy. “We usually have very high occupancy rates, but last October we noticed we were not re-filling cancellations. In November we really started to notice it. In previous years, we’d been seeing increases in the shoulder months [as opposed to the high tourist season] like February and November. But now we saw a drop in occupancy for the first time in 10 years.”

Facebook Twitter Pinterest Loch Glendhu, near Kylestrome, Sutherland. Photograph: Alamy Stock Photo

Talking to other hospitality businesses along the north-west coast revealed similar experiences, says Lister, with bookings falling by up to 50%.

Her decision was to invest heavily – in the building, the roof, drainage, crockery – for a very specific reason: “We decided to spend more rather than less to make sure that when people came out to eat, everything was as it should be. What happens when people feel a pinch is they get a bit more choosy about where they spend their money.

“If they’re only going out once a month then they want to make sure that one place is going to be the best experience they can possibly get for what they want to spend.”

As a consequence, says Lister, her customers’ average spend has gone up slightly.

Facebook Twitter Pinterest Tanja Lister: ‘If we start talking more doom and gloom you create your own nightmare.’ Photograph: Peter Jolly Northpix/The Guardian

Whether such strategies can be effective in the year ahead will be crucial in this corner of the Highlands – and across the rest of the country.

Figures this month showing the first fall in quarterly GDP in six and a half years sparked immediate speculation that the UK was heading for another recession. Scotland’s own figures for the second quarter of 2019 are not released by the Scottish government until next month, but Mairi Spowage, the deputy director of the Fraser of Allander Institute, an independent economic research unit based at Strathclyde University, says she believes the results will mirror the UK-wide picture. And if so, as economists and politicians try to figure out what is going to happen next, businesses like Lister’s may prove to be the canary in the coalmine.

“We can’t be certain about recession yet, but what we can say is there is going to be volatility,” Spowage says. “There was a stockpiling bounce in the first quarter, and you can see the unwinding effect from that in the second quarter. I would expect a similar contraction in construction and manufacturing that you saw in the UK, along with limited services growth, which could lead to a negative figure for Scotland as well”.

She says consumer sentiment is “pretty gloomy”, and the experience of those across the till in the retail and hospitality sectors is similarly downbeat.

Andrew McRae, Scotland policy chair for the Federation of Small Businesses, says: “Business confidence in Scotland has been bumping along the bottom for some time now, except for an increase in the spring which could have been down to Brexit stockpiling or related preparatory work.

“Some of our members – especially those in hospitality – highlight the impact of compound increases in overheads combined with waning consumer demand.”

But, he adds, nothing is settled yet. “It is absolutely too early to say whether a recession is certain, and we’d argue that there’s action politicians could take to restore business and consumer confidence.” The evidence suggests they will need to.

On 15 August the Scottish Licensed Trade Association released its half-yearly review, which found 28% of outlets had experienced a negative impact on sales, attributed to uncertainty about Brexit, up from 17% last year.

A decade after the financial crisis, Lister acknowledges that a still-weakened pound has some benefits for tourism because it is cheaper for people to visit from overseas, while staycations within the UK are increasing. But this is double-edged, because domestic travellers are more likely to be put off by jitters about a Brexit-prompted recession.

“All winter, we had fewer bookings coming in for next season, when we were still due to leave [the EU] in March,” says Lister. “Then after March it all bounced back and we had a fantastic April, May, June. It wasn’t so much the international trade, but domestic and that can only be due to uncertainty, with people saying: ‘We don’t know what’s going to happen, we’re going to batten down the hatches’, but then they say: ‘Bugger it, life has to go on’.”

Q&A UK hospitality industry in numbers Show Hide Number employed in sector: 2.9m Percentage of GDP: 5% Overall hotel occupancy rate in 2018: 76% Forecasted drop in hotel investment this year: 34% Revenue per average room for hotels outside of London: £55.10 Brexit impact: A no-deal outcome is predicted to cost £1.8bn a year by 2024. Industry is concerned that a loss of access to overseas workers will create staff shortages. Analyst prediction: Liz Hall, head of hospitality and leisure research at PwC: 'Following a number of years of strong revenue growth, when there was not the imperative to focus on costs, prudent hotel operators and owners need to adopt a stringent approach to operating costs growth in 2019 to preserve profitability.'



The economic calculation is simple, says Lister: “When you’re coming up to a cliff edge, people start panicking and think: ‘We don’t have to spend this money this month.’”

David Lonsdale, the director of the Scottish Retail Consortium, agrees. “Shoppers are being very cautious at the moment. There’s the political uncertainty with Brexit and what that means for the economy, but at the same time there have been a number of cost pressures affecting households, such as council tax rises and increases in statutory minimum pension contributions. While wages are growing in real terms, increases in the costs of living are weighing on demand.”

It adds up to “a pretty underwhelming summer” for the Scottish retail industry, he says. “Grocery retailers continue to perform reasonably well, but much of the latest data suggests food inflation is playing a big part in that. In terms of non-food categories, larger electrical items, indoor furniture, mobile phones, even DIY have fared well of late, but clothing and footwear and health and beauty are having a pretty tough time.”

Lister perceives some risk in talking up a looming recession, especially as a business owner who depends on customers feeling sufficiently flush to pay for luxury extras above their daily bills. “If we start talking more doom and gloom you create your own nightmare.”

For Lister, the threat of Brexit – to which she is passionately opposed – presents a far more present danger. “Anyone running a business wants an outcome to Brexit because the continued uncertainty is horrible and the longer it goes on the more we erode consumer confidence.”

Like many business owners, particularly those in the tourism sector and based out of the central belt of Scotland, Brexit has also caused acute staff shortages at the hotel. “A fair chunk of of our team is from Europe,” says Lister. “No matter what the reality is, it’s the uncertainty beforehand, about whether they are welcome or what permissions they need. We noticed an impact as soon as the 2016 referendum took place, a huge percentage drop-off in applications from the EU.”

Again, she has attempted to offset this by investing heavily in pay and packages for her employees, and is now a Living Wage employer. “A lot of businesses are doing this, but at the same time business rates and energy rates have gone up over the past few years, so there is a big profit pinch. Then you get to a point like this with Brexit and the threat of recession and for a lot of businesses that is going to spell bad news.”