The latest CBI pay data bank report concludes that businesses are having to raise pay in order to recruit and retain key staff, although the official line is that settlements are stable. Settlements in both manufacturing and service sectors have risen.

In the three months to April, service sector pay awards averaged 3.6 per cent, compared to 3.5 per cent in the three months to January. Nearly 40 per cent of service sector businesses reported that rising staff shortages were a significant factor in the increase in pay.

In the manufacturing sector pay rises averaged 2.6 per cent in the three months to April, compared with 2.5 per cent in the three months to January.

Despite concerns that the pay rises may lead to inflationary pressures, the CBI maintains that there is no need for the Monetary Policy Committee to raise interest rates.

Reports over the weekend, suggested that the government may be planning to increase the minimum wage prior to an anticipated election next year. The CBI has warned that such a move could only put further pressure on businesses at a difficult time.