Business leaders have warned against a sharp rise in the UK's minimum wage, saying it could lead to widespread job losses.

The Confederation of British Industry (CBI) said research had shown that one in three firms would cut jobs if the rate rose to �5 an hour, from its current level of �4.20.

The CBI said that it supported a "modest" rise in the minimum wage "if economic circumstances allow".

But it added that too high a rise could hit those working in sectors such as hospitality, leisure and care homes.

"Firms most affected are those that are least able to absorb an increase in employment costs," said the CBI's director-general Digby Jones.

"Pushing up the rate by more than average earnings would clearly cause considerable pain and have an inflationary effect creating unintended consequences."

Union wishes opposed

The CBI made its comments as it presented its evidence to the Low Pay Commission, which in February will recommend a new rate of the minimum wage to be introduced in October next year.

Earlier this month, the minimum wage increased from �4.10 to �4.20 an hour, while the rate for workers aged 18 to 21 also went up by 10p to �3.60 an hour.

The CBI said if the minimum wage increased significantly above �4.50 an hour next year, the wage could price people out of work.

And the CBI rejected calls by the main union body the TUC to raise it to �5 or more and to remove the lower rate for younger workers.

"We cannot keep heaping costs onto vulnerable companies and expect them to take it on the chin," Mr Jones said.

"If we are not prudent, the result will be wide-scale job losses and that would be a disaster for the low paid."