One in two businesses are set to grant their staff pay rises of over 2% in the next year, according to a new survey by the business organisation British Chambers of Commerce (BCC) and on-line recruitment company Indeed.

The survey (involving 1,000 businesses of all sizes and sectors) reveals that 6% of firms will increase pay by more than 5%, 32% by 2-5%, 12% in line with consumer price inflation, and 18% by 1-2%. Only 2% of firms say that they expect to reduce salaries.

When looking at increases in the National Living Wage over the next three years, 37% say that they will respond by raising the price of their products and services, and 23% say that they will take lower margins and profits.

Meanwhile, 16% say that they will increase their investment in automation — the same number that say they will recruit those on flexible contracts, such as the self-employed.

The survey results also show that, despite increasing economic uncertainty, a fall in the exchange rate, and numerous upfront costs incurred over the last couple of years, firms remain committed to giving their staff a pay rise.

However, the Government needs to reduce the growing cost burden on business at the next Budget and make it easier for firms to grow, as well as hire and retain staff.

Jane Gratton, BCC head of business environment and skills policy, said: “This is good news for employees who have felt the squeeze in their pay packets in recent months.

“People and skills are the most important assets for businesses, so employers will want to pay a wage that motivates and retains their team — but the cost of wage increases has to be offset in some way, for example by greater productivity, lower costs or higher prices.

“Our survey work has shown that growing and pervasive skills shortages are making it harder than ever for firms to fill job vacancies, so it is little surprise that they are pulling out all the stops to keep hold of the skilled staff they have.

“The rising cumulative cost-burden of employment, together with business rates and other charges, increases the pressure on firms to raise prices and automate.

“To avoid future job losses, the Government must avoid any additional costs on business and help firms to boost productivity — for example, by making it easier for firms to use the apprenticeship levy to up-skill their staff.”