Pay awards in Britain continued to rise in the three months to December, the employers group, the Confederation of British Industry (CBI), has said. The figures emerged just days after a warning from the Bank of England that excessive pay deals could fuel inflation.

The CBI's latest pay databank survey showed manufacturing pay settlements averaged 3.8 per cent in the latest quarter, up from 3.5 per cent in the three months to November and 3.1 per cent in the same quarter a year ago.

The flourishing service sector is in the grip of a sharper wage spiral, with pay deals averaging 4.5 per cent in the three months to December, up from 4.2 per cent in the November quarter.

Since August, 45 per cent of manufacturers have said a rise in the cost of living was a key upward pressure on wage deals, while 22 per cent cited the need to recruit and retain employees as a major reason behind higher pay.

Wage deals in service firms have varied wildly with 10 per cent of awards at or below 2.5 per cent but the top 12 per cent above 5.5.