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, as well as the latest official inflation figures.

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 (RPI) of minus 3.6 per cent in the second quarter of this year.

And, while figures released today by the Office of National Statistics show that the Consumer Price Index fell in January to three per cent — only 0.1 per cent down from December — the RPI has already fallen to its lowest level in nearly 49 years. At 0.1 per cent in January, RPI was down from 0.9 per cent in December.

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, as the CBI is forecasting, in a figure 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.

The problem with the RPI link to train fares was highlighted by RAILNEWS in our Editorial Comment earlier this month, in which we stated:  “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.”

Another twist could be the affect this years pay negotiations, which are normally based on RPI. “Zero or negative RPI could result in the extraordinary occurrence of average pay increases also falling towards zero,” John Philpot, of the Chartered Institute of Personnel and Development, told BBC News.

In light of the current strain on government finances, Mr Philpott called for a freeze on public sector pay.

The impact of the growing recession on passenger train 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.”