Salaries in the UK are increasing but are failing to meet the cost of living, new research has revealed.

Wages rose by 2.5 and 3.1 per cent in 2010 and 2011 respectively, while price inflation was 4.4 per cent in July 2011, according to the Aon Hewitt European Salary Increase Survey 2011.

The findings indicate that during tough economic times businesses are still apprehensive about their salary budgets and the impact of external pressures.

“The pattern of pay increases revealed by this survey shows how difficult the current economic climate is for many organisations planning and making their pay awards in the UK at the moment,” said Duncan Brown, Principal for Talent and Reward at Aon Hewitt. “After three years of very low salary increases, savings are running out and the knock-on effect of reduced consumer spending and slower economic recovery seems highly likely.”

Pay freezes and reductions were not reported by any firm in 2011, compared with 12 per cent that reported them in 2010.

The survey, which sought responses from more than 230 businesses, also showed that salary increases are expected to reach 3.2 per cent in 2012.