The national minimum wage is to rise from £5.35 to £5.52 an hour in October, the Department of Trade and Industry announced today.
Trade and Industry Secretary Alastair Darling has accepted the level recommended by the independent Low Pay Commission which will also mean increases from £4.45 to £4.60 for 18-21 year olds, and from £3.30 to £3.40 for 16-17 year olds.
Today's announcement means the minimum wage has gone up by almost 30% more than inflation since it was introduced in 1999, but employers' groups welcomed the decision to keep the latest rise in line with inflation.
British Beer and Pub Association director of communications Mark Hastings said: "What is clear is that the Low Pay Commission has listened carefully to businesses - this increase is in line with inflation."
John Cridland, CBI deputy director-general, said: "With interest rates and inflation rising this is not the year for unaffordable wage increases. Last week the Chancellor made sensible decisions on public sector pay, today Government has applied that same caution to the private sector.
"The CBI had called for business to receive some relief this year. The minimum wage increase has exceeded average earnings growth since 2003, causing it to have a disproportionate impact in sectors such as retail and hospitality, and undermining pay and employment policies within many firms."
In January, the Government introduced a crackdown on businesses not paying the minimum wage.
A typical penalty for underpaying a single worker is now more than £200, while employers who fail to pay the minimum wage can face prosecution, risking a criminal record and a £5,000 fine.
The Government, which has already targeted hairdressing and childcare sectors for enforcement, is now focusing on hotels, followed by hospitality.
By Daniel Thomas
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