Research by the Incomes Data Services (IDS) shows that pay increases in private sector firms have declined over the last quarter from 2.5 per cent to just 0.5 per cent in the three months to July.

IDS studied 42 separate pay settlements and found that very few pay increases were agreed at above four per cent. A quarter of settlements were for three per cent.

The number of pay freezes fell from one in five to one in ten, though no data from the public sector was used.

The data highlights the continued squeeze in living standards that the UK population is under.

The fall in inflation over the past year has lessened the pressure on employers to offer higher wage increases, though many private sector employees have suffered a pay freeze for a year or more.

Last week, the Office for National Statistics reported that the average UK household is spending £45 less each week than it was in 2007 before the financial crisis.

Ken Mulkearn of Incomes Data Services said: "The slight fall in the median basic pay award, while it comes outside the main April pay-setting period, highlights the squeeze in living standards that has been in evidence for the past few years.

"This is underlined by the recent uptick in inflation, which widens the gap between average pay settlements and the cost of living once more.

"However, some sectors have been faring better than others in pay terms, largely as a result of differing economic performance."

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