Many firms are expecting to give their employees rises of less than 3.5%, according to a report published by the Chartered Institute of Personnel Development (CIPD) in conjunction with accountants KPMG.

Some companies are currently keeping their options open because of hiring problems and increases in inflation, with the wider Retail Price Index (RPI) measure of inflation standing at 4.4%.

Around 60% of firms polled in the quarterly market survey intend to award less than 3.5%, but one in eight stated that the rises they will award could be above 4%. Across the board, 80% said that staff numbers would grow in 2007.

Dr John Philpott, chief economist at the CIPD, said labour market conditions “looked conducive to moderate pay settlements this winter with enough willing workers, especially migrants, to help employers withstand claims for inflation-matching pay rises.”

But he argues that the situation was more complex than first appeared. “Aside from the commonly observed tendency for some pay settlements to track the RPI seemingly regardless of supply and demand, a growing proportion of employers report difficulty in finding recruits with the attributes they are looking for.”

However, he concluded: “The winter pay round looks benign for interest rates and jobs.”