Yell shares surged to a record high today after the UK competition watchdog surprised the market by proposing less stringent price controls for Yellow Pages.

The directories business will now be allowed to raise prices in line with retail price inflation (RPI) from April 2008, rather than the current cap of RPI minus 6 per cent.

The shares gained 9 per cent to 578.5p on the news following a commission inquiry into the classified sector dating back to April 2005.. To track the stock click here.

"This is clearly very good news for Yell," Paul Gooden, an ABN Amro analyst said.

"We, along with the consensus, had braced ourselves for another four years of RPI minus 6 per cent."

The decision came as the Competition Commission acknowledged that an explosion in classified advertising websites and former Yell parent BT Group’s re-entry into the directories market would both stiffen the competition.

Although the UK now accounts for roughly 15 per cent of the value of Yell following a string of acquisitions in the US and Spain, Mr Gooden said this morning’s news was worth between 25p and 30p for the shares.

John Condron, Yell’s chief executive, welcomed the proposed relaxation in price regulation but added market forces - rather than regulation - should be the preferred solution.

He said: "We have said many times we do not think the rapidly evolving and highly competitive classified directories market requires regulation and we will continue to press this point."

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