Premier Inn owner Whitbread has reported a 40% fall in annual profit and warned that a drop in demand for hotel rooms had worsened in recent weeks as Brexit uncertainty discouraged bookings, particularly among business travellers outside London.

Alison Brittain, the Whitbread chief executive, said the hotel market had been hit by declining business confidence over the past two years, which worsened in March and April. She said bookings had been weaker than expected and “coincided with the most acute period of uncertainty we’ve probably experienced in our lifetimes”. Businesses account for half of Premier Inn’s bookings.

The UK was scheduled to leave the EU on 29 March, but the deadline was extended to 12 April and later to 31 October. The threat of a no-deal Brexit has forced many businesses to draw up contingency plans and to rein in spending.

Brittain said: “We hear of lots of businesses [where] uncertainty is an unhelpful element … We did have a number of even large businesses not travelling at all in the March-April period. They were just asking people to cease travel.”

Sales in the regions, where most of the 800 Premier Inn hotels are located, fell by 1.5% in March and revenue per available room, a key industry measure, was down 4.4%. It said both business and leisure travellers were cutting back. Bookings in London have held up, however, as international visitors continue to flock to the capital.

Brittain said independent hotels were struggling even more, and Premier Inn was likely to add to its 9% market share. The UK’s biggest hotel chain is pushing ahead with expansion, from 76,000 rooms to a target of 110,000 in the next few years.

She hailed a “momentous year” for Whitbread, after it sold its Costa Coffee chain to Coca-Cola for £3.9bn in January, which leaves the once-sprawling brewing and leisure conglomerate with its budget hotel business and 740 restaurants located next to Premier Inns.

Excluding Costa, Whitbread made a pre-tax profit of £260m in the year to 28 February, down 39% from £426m in the previous year. UK accommodation sales fell 0.6% on a like-for-like basis (excluding new hotel openings).

Whitbread dropped its previous guidance that 2019-20 profits would be flat on last year, and merely noted that revenues per available room would be weak, especially outside the capital.

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The group is using the sale proceeds to return up to £2.5bn to shareholders and to fund its expansion in Germany, where it has opened hotels in Hamburgand Frankfurt with plans for 20 more by the end of next year. Whitbread has also wiped out its pension deficit with a one-off payment of £380m.

Aside from the main Premier Inn chain, Whitbread owns 10 upmarket Hub hotels, seven in London and three in Edinburgh, and is looking at opening more Hubs in cities such as Bath and Manchester.

It has also launched a no-frills hotel brand called Zip with small pod-style rooms from £19 per night, compared with £49 at Premier Inn and £69 at Hub. The first Zip opened in Cardiff in March and another one, in Southampton, is scheduled to open towards the end of year. Brittain said Zip in Cardiff was proving popular, especially with people travelling to sporting events at weekends.