Prospects for new jobs improve and firms loosen pay restraint

Only 5 per cent of British companies now have a recruitment freeze in place, while the number of firms planning to offer no pay rise this year has fallen to below one in five, research by the Confederation of British Industry reveals.

The CBI said that while economic conditions remained challenging, the private sector has been able to protect its workforce from the worst effects of the recession and is now beginning to see a return to growth. But the business group warned that tough times were still ahead for the public sector, as government spending cuts begin to bite.

The CBI's figures reveal that two-thirds of companies had recruitment freezes in place this time last year, with the figure having fallen to 37 per cent six months ago. Today it is 5 per cent. On pay, just 16 per cent of employers now have a pay freeze in place compared to a majority a year ago and 47 per cent even six months ago. However, large salary increases will remain rare this year.

Some 29 per cent of employers are expecting to raise wages in line with inflation, while 20 per cent are forecasting below-inflation increases. Just 3 per cent anticipate offering more than inflation.

John Cridland, deputy director-general of the CBI, said: "Although there are some signs that job prospects are improving, a good number of businesses are still operating a pay freeze. Those that can afford it are planning modest or targeted pay rises. By contrast, earnings growth in the public sector is outstripping the private sector."

Mr Cridland warned this could not continue and urged the Government to begin talking to public sector staff about its plans. "So far the public sector has been cushioned from the impact of the recession, but it now faces a squeeze," he warned.