Pay rises kept pace with inflation in the first months of 2002, but the number of firms imposing salary freezes grew, latest figures show.

Most pay freezes were in the manufacturing and tourist industries, sectors which were particularly hard-hit by the global economic downturn and the events of 11 September.

However, some firms have awarded rises of up to 10%, particularly those with low-paid workers who have had to upgrade pay in line with the minimum wage rise in October.

Workers in the rail industry, construction and public services have benefited from skill shortages to win better-than-average pay increases.

Inflation fears

The overall average pay rise of 2.5% for the first quarter of 2002 was broadly in line with the 2.6% underlying rate of inflation, initial figures show.

The findings, from the independent Incomes Data Services research group, suggest that without pay freezes in the electronics, engineering and hotel sectors, the rate was 3%.

The Bank of England's Monetary Policy Committee said recently that it would watch pay deals closely as it ponders whether to start increasing interest rates again after cutting them seven times last year.

Rates are currently at 4%, unchanged since December, but the Bank fears that any pickup in wages could give producers a chance to increase prices and feed into higher inflation.

Inflation rose sharply in January, and any further increase may increase pressure for a rise in interest rates.