Average pay settlements in January have been 4%, up from 3% in the last three months of 2006, according to Incomes Data Services (IDS).

The IDS survey was based on nine pay settlements which have been agreed in January. It found that the median rise - which takes the highest and lowest pay rises out of the equation - was about 4%, which is higher than inflation.

IDS said: "In the face of rising inflation, employees are likely to demand higher basic pay increases."

January is seen as a key month for pay settlements as it sets the pattern for much of the year.