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Inflation fall may trigger rise in rail prices

By Channel 4 News

Updated on 17 August 2010

Rail passengers face soaring ticket prices as inflation hits 3.1 per cent in July, as the Bank of England warning of the "significant probability" the rate will remain above its target for some time.

Inflation falls but the rate is still above target says the Bank of England governor Mervyn King

Official data released today showed that consumer prices inflation slowed to 3.1 per cent in July, from June's 3.2 per cent - the lowest since February and the eighth consecutive month inflation has exceeded the BoE's 2 per cent target.

In a letter to Chancellor George Osborne, the Bank of England's governor Mervyn King said there was a "significant probability" that the rate would be above target for some time.

Mr King said he was still confident that inflation would fall in the medium term so that it would be "close to, or a little below, the target".

Under the BoE's rules, Mr King must write to the chancellor if inflation is one percentage point or more above or below its target.

The governor must write another letter if the rate is still off-target three months later.

The data is bad news for rail passengers. Next year's ticket prices are calculated on another inflation indicator -the retail prices index (RPI). RPI figures were also released today, with the gauge standing at 4.8 per cent in July.

Train companies can add on an extra one per cent to RPI, although passengers in some areas could see an extra 3 per cent added to their fares.

Fares in West Yorkshire have a higher cap of RPI plus three per cent from 2007 until the end of the franchise to enable investment in additional trains in and around Leeds.

Southeastern trains can also add three per cent more to its prices to help pay for enhancements on some of its routes to accommodate the arrival of 140mph Javelin trains for the Channel Tunnel rail link.

There has been speculation that the government could remove the current cap restricting how much rail companies may charge for tickets.

Transport secretary Phil Hammond said, "It would normally be the case that next year’s regulated train fares are calculated using July's inflation figure, plus one percent.

"The scale of the financial crisis that we have inherited means that we will have to make some tough decisions in the spending review which concludes this autumn. I am therefore not yet in a position to determine next year's fare increase.

"It would be irresponsible, at a time when investment in the railway is under pressure, to rule anything out until the spending review is concluded."

Any change in policy could be signalled in the government's autumn spending review but transport pressure group the Campaign for Better Transport says this is unlikely to be in time for January's price changes.

The group's public transport campaigner Alexandra Woodsworth told Channel 4 News, "The government is signalling that it will not announce any changes to the fares formula until after the spending review in October.

"Our rail industry sources have indicated that any changes announced then would not allow enough time to get the new fares into the system in time to implement them in January."

She added, "If the cap were removed altogether, in theory fares could rise to any level, at the discretion of the individual train operators.

"But our view is that it's very unlikely to see the cap completely removed. No previous government has discussed de-regulating train fares in this way, at the very least for competition reasons."

The Department of Transport meanwhile refused to be drawn on plans for the industry and could not rule out price hikes.

The inflation figures came ahead of a speech today by Chancellor George Osborne in which he is expected to attack "deficit deniers" and defend the government's cuts programme

Attacking the Deficit Deniers
The Chancellor George Osborne is expected to attack the "Deficit Deniers" today who will lead Britain to "economic ruin" as he says public spending will be refocused on delivering growth.

The Chancellor has chosen to make an important intervention today, writes Channel 4 News Economics Editor Faisal Islam.

It does seem that the Treasury has been a little stung by suggestions that George Osborne's harsh austerity message has hit consumer and business confidence, like Nick Clegg yesterday who is trying to show a little "light at the end of the tunnel".

He will attack the "Deficit Deniers" that he sees in Labour's leadership campaign. He may hear the echo of some support for this from his predecessor Alistair Darling's speech tonight - and as former city minister Lord Myners has argued: "There's nothing progressive about a deficit".

The chancellor however has yet to prove that the new measures he took in June are indeed better for the poor than for the rich - as the IFS concluded that they were "somewhat regressive".

Osborne's message today: more fairness, less fear. The jury is still out on both matters though.

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