British government body urges 3 percent rise in minimum wage

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A worker descends steps near the Millenium Bridge, with St. Paul's Cathedral seen behind during the morning rush hour in the City of London, December 16, 2014. REUTERS/Toby Melville

By David Milliken

LONDON (Reuters) - A British government body recommended a 3 percent rise in the minimum wage on Monday, which would take it to 6.70 pounds ($10) an hour, the biggest real-terms increase since 2007.

Although the wage rise is not due to take effect until October, the prospect of more pay could boost morale among Britain's lowest earners in the run-up to a national election in May, when the cost of living is likely to be a major issue.

Britain's government usually follows the recommendations of the Low Pay Commission, and last year Chancellor George Osborne said he wanted the minimum wage to grow faster than inflation, to make up ground lost during the financial crisis.

The government increased the minimum wage by 3 percent in 2014, but much lower inflation in 2015 means that workers will feel more of the benefit of this year's increase. Annual consumer price inflation eased to just 0.3 percent in January.

"The continued recovery, and in particular the impressive growth in employment of the low paid, should this year allow a further increase in the real and relative value of the minimum wage," said the commission's chairman, David Norgrove.

About 5 percent of Britain's workforce is paid at or very close to the minimum wage, and almost a third of workplaces use it as a guide for setting wages, especially in the retail and hospitality sectors.

The 3 percent rise is almost double the 1.7 percent annual rise in average weekly earnings, excluding bonuses, reported for the fourth quarter of 2014.

But it is less than the 3.5 percent growth which the Bank of England has forecast for the fourth quarter of this year, when the annual rise in the minimum wage will take effect.

Employers at the Confederation of British Industry (CBI) said companies' productivity remained low, limiting the scope to pay higher wages, and warned against "any artificial increase due to political expediency".

The Trades Union Congress, which like the CBI is represented on the Low Pay Commission, said the increase should have been "bolder".