Pay deals appear to be getting more generous

The figure is up from 3.4% last month, said Incomes Data Services (IDS).

IDS said the jump had been triggered by Retail Price Inflation (RPI) rising to 4.3% in November from 4.2% in October.

The RPI figure is used as the basis for many pay deals, despite it being higher than the government's preferred Consumer Price Index measure.

Inflation as measured by the Consumer Price Index was unchanged at 2.1% in November - the most recent available data - just above the government's 2% target.

Price pressures

"While the jury is still out on the extent to which the credit crunch in finance will affect the rest of the economy, our initial look at January deals confirms the continued influence of high inflation on pay negotiations in the private sector," said Ken Mulkearn, editor of the IDS Pay Report.

"In 2006 the Treasury argued that inflation increases were caused by 'temporary factors', however average inflation for 2007 stands at 4.3% overall."

The IDS added that pay rises for the whole of 2007 averaged 3.5%.

Its latest survey covered 30 annual pay deals involving more than 430,000 employees.

Inflation has been lifted primarily by higher energy and food bills.

In November the price of a litre of unleaded petrol broke through �1 for the first time, and a month earlier the annual rate of food inflation hit a 14-year high.

The higher pay deals in the private sector may increase the pressure on the government to be more generous with pay rises in the public sector.

Police in England, Wales and Northern Ireland are currently in dispute with the government over the offer of a 2.5% pay rise, which has not been backdated as it has been in Scotland.