Royal Mail will be able to set prices for most of the letters and parcels it delivers under a new seven year framework, industry regulator Ofcom said on Tuesday.
Royal Mail, earmarked for privatisation, made a 41 million pounds ($65.34 million) operating loss on letters and parcels in the six months to September 25 as it fights against the rising use of email hitting its services.
Under a new framework it will now have the freedom to set its own prices for the majority of its products including First Class stamps and most business mail. The price of Second Class stamps for standard letters will be capped at 55 pence.
Huge changes are affecting the postal industry, particularly the decline in postal volumes as consumers and businesses switch to other means of communications such as text, email and online services, Ofcom said in a statement.
Ofcom's new regulatory framework for post is designed to secure the continued sustainability of the universal postal service, it added.
The Universal Service agreement ensures UK consumers get a universally-priced, affordable postal service, six days a week.
Ofcom said Royal Mail must still provide competitors with access to its delivery network but will be able to set a wholesale price for doing so, although this will be subject to rules regarding the margin between its wholesale and retail prices.
Ofcom said it retained the ability to intervene if the new regime did not work.
Last week, Britain's second largest postal firm TNT Post said it is to trial deliveries on the streets of west London in April as it steps up ambitions to rival Royal Mail as the UK's postal provider.
The news follows a decision by the European Commission last Wednesday to approve government plans to take on Royal Mail's hefty pension fund in a bid to improve its safety for employees, and attract private sector investment to the business.
Britain's Conservative-led coalition wants to sell or float up to 90 percent of the state-owned company, with employees to be offered the remaining stake. A report in the Financial Times on Monday said Britain aims to begin the process in the fall of 2013.
In the six months to Sept, Royal Mail more than trebled overall operating profit to 67 million pounds as its European and British express parcel service GLS, and its post office branch network offset the losses at its letters and parcels division.
(Editing by James Davey)