Average pay deals have risen to 3.2 per cent in response to the higher rate of inflation, a new report revealed today.

Settlements increased by 0.2 per cent on average in the three months to January, with slightly bigger increases in manufacturing firms.

Research by pay analysts Incomes Data Services (IDS) showed that deals so far this year were mainly worth between 3 per cent and 4 per cent.

"With no rapid decline in headline inflation in prospect over the next few months and a tight labour market, we expect to see pay rises continuing to run ahead of last year's levels in much of the private sector," said Alastair Hatchett, head of pay services at IDS.

"The big question is how far the Government will try to hold down public sector pay rises - not usually their favoured option as an election approaches."

Of 91 settlements surveyed, three out of four gave pay rises of between 2.5 per cent and 4 per cent, although a deal involving bar staff was worth 7.8 per cent.

The overall level of pay settlements has been pushed up by the rise in inflation, which reached 3.5per cent in the year to December, said the report.