Firms wary of rising Labour costs

A business group said firms which held on to staff during the recession were now starting to "pay the price" because of the increased costs involved.

The London Chamber of Commerce (LCC) said its Business Price Index, which measures staffing as well as energy, raw material and other costs.

Erik Britton, director of Fathom Financial Consulting, which conducted research for the LCC, said: "The recession has hit demand hard but, so far, businesses have held back from shedding labour.

"They are now starting to pay the price, with labour costs starting to increase alongside costs of raw materials and energy. Overall cost inflation is low, but it will only stay that way if wage growth is held down."

Dr Helen Hill, Director of Policy at the LCC, said: "We know that firms are still operating in survival mode, avoiding redundancies wherever possible but at the same time reluctant to invest in future expansion.

"Investment will be key to ensuring the UK recovers however, so employers will need to keep wage costs down if firms are to rebuild their margins and if we are to avoid future job losses in the private sector."

The index drawn up by the chamber showed that costs fell slightly by 0.2 per cent in the year to April, but this compared with a drop of 0.9% in the year to March, largely because of increased borrowing and labour costs.