PAY rises in Dorset have remained at an average of 3.5 per cent in recent months, "firmly parked" below headline inflation, says a new report.

Pay analysts IRS said below-inflation increases appeared to be the norm for most workers because of the economic uncertainty in the UK.

Even the highest recent pay deals have been below the 4.1 per cent headline rate of inflation, said the report, based on a study of 162 settlements.

Pay rises in the public sector averaged 2.5 per cent, around one per cent lower than in private firms.

Sheila Attwood of IRS said: "Although our headline measure of pay awards, at 3.5 per cent, is the same level as recorded in the same period a year ago, the proportion of pay awards worth more than in the previous year is gradually falling.

"From 54 per cent in the three months to the end of January, to 45 per cent in February, this is a pattern we expect to continue.

"With the latest headline inflation data showing price increases stable at 4.1 per cent, wage setters are battling conflicting pressures of high inflation and low economic expectations.

"April, the busiest month in the pay bargaining calendar, will therefore prove a crucial indicator for the overall direction of UK pay bargaining."

Adrian Simpson, partner at Poole-based accountancy firm Mazars said: "There is pressure in both public and private sectors to increase wages.

"It is more expensive to live. We're all facing higher bills, interest charges and home expenses. Once people have done their cost-cutting the next thing is to then seek a pay rise. Employers are caught in a squeeze.

"They face customers wanting cheaper deals but are themselves experiencing higher costs such as rent and transport.

"Employers are not able to pass these costs on. And those employers dealing internationally are facing even more pressure due to the competition consistently reducing sales prices.

"Employers are finding it tougher to reduce costs. Additionally commodity prices are spiralling such as oil, gold, gas, platinum."