Royal Mail warns another hike in stamp prices is likely after April increase

Postal service says potential rise would help offset higher staff and energy costs and fall in parcel deliveries

Royal Mail has warned that it is likely to raise prices again for stamps and letters, as part of efforts to combat rising costs and offset a post-pandemic slowdown in parcel deliveries.

The delivery company said on Thursday it would try to make up for falling revenues and higher staff and energy costs through “price increases and growth initiatives” over the next year, having already raised the price of sending letters and parcels by 7% and 4% respectively. Royal Mail said it had also introduced a fuel surcharge in some of its contracts, in a move that finance chief Mick Jeavons said was “fairly measured”.

Last month, Royal Mail increased the price of first-class stamps by 10p to 95p, and added 2p to second class stamp prices, which rose to 68p.

However, he would not confirm the scale of any further potential price rises for Royal Mail customers. “We haven’t said what we’ll do on price moving forwards,” said Jeavons. “We need to be careful not to price our way to losing customers, and so we need to be careful how we tread.”

The warning came as Royal Mail warned that the company was at a “crossroads” and needed to urgently adapt to the post-pandemic environment as parcel deliveries, originally boosted by Covid lockdowns, continue to wane.

It piles further pressure on the postal company, as it struggles to reach a pay deal with unionised staff who are pushing for an inflation-based pay rise as the cost of living soars.

Royal Mail said on Thursday it suffered an 8.8% drop in annual pre-tax profits to £662m, explaining that revenues were flat as the easing of Covid restrictions reduced demand for parcel deliveries. The drop was partially offset by the distribution of Covid test kits, but overall, parcel demand across the UK fell 7% year on year.

Its chairman, Keith Williams, admitted that the financial tailwinds of the pandemic “are now dissipating” and the company was steeling itself for a drop in economic growth and higher inflation that could pose challenges for both its UK and international delivery business.

“We are at a crossroads with the transformation of Royal Mail,” he said. “We need to adapt our business to a post-pandemic world and whilst we are making progress in some areas, more needs to be done in others”.

The news sent shares down nearly 10% on Thursday morning, wiping nearly £400m off the company’s value and making Royal Mail the biggest faller on the FTSE 100.

The courier also faces an ongoing pay claim with staff represented by the Communication Workers Union (CWU), which said Royal Mail’s full-year profits were “earned off the backs of our members hard work”.

“Every single penny of the £758m [adjusted operating] profit was from letter, parcel and test kits collected, processed, distributed and delivered by key postal workers, not by board members and not by shareholders but by our members,” said Terry Pullinger, the CWU’s deputy general secretary.

“It is an outstanding effort delivered during unprecedented times from key workers …The CWU are immensely proud of our members and even more determined than ever to get the reward, recognition and pay rise that these results prove they deserve.”

The company has so far offered a 3.5% pay rise for workers, with the potential for a further 2% rise for workers who reach certain productivity targets.

However, the union is understood to be seeking an inflation-based pay rise with “no strings attached”. Figures released on Wednesday showed that UK inflation hit 9% in April, its highest level for more than 40 years, following a surge in food, energy and transport costs.

A Royal Mail spokesperson said it wanted to reach an agreement with the CWU as soon as possible. “Our industry is characterised by a race to the bottom on pay and terms and conditions. We will not join that race and will retain our place as the industry leader on pay and terms and conditions. We value the work we do with CWU and remain committed to agreeing a deal.”