THE serious impact on passenger train operating companies of the continuing economic downturn has been highlighted by the latest — and gloomy — economic forecast by the Confederation of British Industry.

The CBI now expects economic growth to fall by 3.3 per cent during 2009, resulting in rising deflation (negative inflation) during the year — including a Retail Price Index of minus 3.6 per cent in the second quarter of this year.

Under the Department for Transport’s formula for calculating increases in regulated rail passenger fares, applied each January, one per cent is added to the RPI recorded in the previous July.

So if deflation results in a figure as the CBI is forecasting of minus 3.6 per cent by the start of the third quarter of 2009 — followed by minus 4.4 per cent in the third quarter — train operators would be forced to cut all regulated fares by at least 2.6 per cent next January.

This problem was highlighted by RAILNEWS in our Editorial Comment earlier this month, in which we stated: “The bigger worry for the train operators … is whether government’s RPI+1 formula for calculating regulated fares will continue.  Last month saw wide criticism of regulated fare increases of seven per cent, based on last July’s inflation level.
   
“But by next July some economists fear we could be in deflation, with inflation possibly at minus two or two-and-a-half percent.  If so, and the government does not change the formula, TOCs could be faced with lowering fares next January—even though many of them are committed to make increasing premium payments to the government.
   
“And, of course, government’s (dwindling) finances pre-suppose continued income from franchise agreements as part of the policy to increase the contribution by passengers to rail industry costs from half to three-quarters.”

The impact of the recession on passenger operators may become clearer later this week when Go Ahead Group — whose Go Via joint venture operates the London Midland, Southern and Southeastern franchises — is due to announce its half-year results.

The latest CBI economic forecast predicts the UK economy contracting throughout this year: “The cumulative fall in output is forecast to be 4.5 per cent, which is far higher than in the early 1990s recession, but still below that of the early 1980s.”

The CBI also forecasts “a 9.2 per cent fall in business investment this year and a sharp rise in unemployment to just over 3 million by early 2010.”

However, there is a chink of light, with the CBI forecasting that “a muted recovery in output growth is expected over the course of 2010 as the various stimulus measures take effect and credit flows are repaired.”