Many bosses are feeling pressured to award big pay rises because staff are feeling the pinch due to rising inflation, fuel and energy costs, a new survey has shown.

The report, commissioned by Croner Reward, part of Wolters Kluwer UK, reveals that most employers gave pay rises higher in line with last year’s award – but 30% gave less. The basic percentage pay rise across the board was between 2% and 4%.

The news is in line with recent official figures from the Office of National Statistics, which shows that the annual rate of growth in average earnings excluding bonuses was 3.8% in May 2008. Yet it is a figure that was down 0.1 from the previous month. Including bonuses, it was also 3.8%, down 0.1 from the previous month.

The Industrial Relations Services found the average wage increase in both public and private sectors is 3.2%. But the retail prices index measure of inflation stands at 4.6% – the largest gap recorded since October 1990.

Andrew Walker, business director at Croner Reward, said: “While it is clear that some individual employers have already taken the decision to give above average pay rises, many will not be in a position to do this. Setting aside the call for restraint in the public sector, many private sector employers will themselves be feeling the pinch and they will find it hard to divert already stretched financial resource into this area.”

Walker advised employers to proceed with “caution”: “The last thing we need right now is a return to the days of spiralling pay competing with increasing customer costs for goods and services. This will only lead to further pressure on the economy as a whole.”

In related news, London ranked third in the most expensive cities listing by Mercer.