Skills shortages look set to continue in 2005, with latest figures showing a record rate of employment.

Office of National Statistics figures show that the number of people claiming jobless benefits fell to its lowest level since 1975 in the quarter to December, while the number of people in work hit a record 28 million people - the highest figure since comparable records began in 1971.

Meanwhile a new survey from the Chartered Institute of Personnel and Development (CIPD) found that over half (55%) of employers anticipated ongoing recruitment difficulties in the coming quarter, with lack of specialist skills (66%) being the main reason given for recruitment difficulties experienced in the last quarter

However the CIPD survey found that labour market pressures were showing no sign of fuelling inflationary pay increases.

One in four employers interviewed expected to pay to remain stable or rise by less than 2%, and fewer than 5% of employers expect increases to exceed 4%. The vast majority (68%) expect pay increases to average between 2% and 4%.

Dr John Philpott, CIPD chief economist, said: "The tight labour market is creating real difficulties for employers seeking to recruit new employees and retain existing ones. With pay restraint seemingly remaining the norm, employers are investing more time and effort in improving recruitment efforts. Many are also paying greater attention to work-life balance and family friendly policies in order to attract new staff, and retain and motivate the existing workforce."

There were signs that the Government's plan to axe civil service jobs was having an effect on recruitment in the public sector – previously a booming area. The net figure for public sector employers expecting to employ more staff is zero, while a net quarter of all private sector employers expect to be employing more people in one year's time.