Royal Mail delivers inflation-busting stamp price hikes to ensure "sustainability" of business model

 
Oliver Gill
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The Price Of UK Postage Stamps Set To Increase
Royal Mail has been grappling with terminally declining letter volumes (Source: Getty)

Royal Mail is to hike the price of stamps from March, putting an extra 2p on the cost of posting a letter as it counts the cost of being Britain's dominant postal firm.

The increases come as the postal giant admitted many Britons are struggling financially.

After a review process, first class stamps will rise by 2p to 67p, with second class costs rising to 58p. The increases equate to hikes of 3.1 per cent and 3.4 per cent respectively. The changes will be in force from 26 March.

UK inflation is currently 3.0 per cent, per the government's consumer price index.

"Royal Mail understands that many companies and households are finding it hard in the current economic environment. As a result, we have considered any pricing changes very carefully and in doing so have sought to minimise any impact on our customers," the company said in a statement.

The postal giant has delivered stellar returns to shareholders since its stock hit lows in November. More than £1bn has been added to Royal Mail's market capitalisation since last year's nadir after the threat of industrial action dissipated.

Unions and Royal Mail recently sealed a pay and pension deal after a protracted and embittered dispute.

Read more: Deal delivered: Royal Mail agreement paves the way for FTSE 100 return

"Sustainability"

Around half of the firm's revenues come from its letters business, which is in steady decline.

Under its so-called universal service obligation (USO), Royal Mail is more heavily regulated than many of its competitors – such as UK Mail and DHL.

While the USO is highly attractive in terms of Royal Mail's top line – as it guarantees a privileged position in Britain's delivery market – the regulations are costly. Royal Mail insiders and analysts have highlighted profit margins from the USO are very thin.

Announcing the changes yesterday Royal Mail said:

We are making these changes to help ensure the sustainability of the universal postal service.

However, the FTSE 250 firm said despite the price increases, it offers the best value in Europe.

"The UK also has one of the highest quality of service specifications of any major European country."

Some 3p will be added to the price of large letter postal prices to 101p and 79p for first and second class stamps respectively.

Read more: Royal Mail is held back by out-of-date red tape

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