Half of UK employers are planning to freeze the pay of their workers and only four per cent are likely to offer inflation-busting increases.

However, research carried out by recruitment firm Harvey Nash for the Confederation of British Industry (CBI) found that recruitment is looking up.

The number of firms operating a recruitment freeze has dropped from 61 per cent in spring to 37 per cent now.

"As unemployment has risen, businesses and staff across the country have had to adapt to new economic realities. Pay cuts to preserve jobs are part of that reality,” said CBI director-general John Cridland.

“Market conditions continue to be very tough and growth in 2010 will be feeble, so pay is going to be squeezed for some time to come.”

He added: “The new spirit of cooperation between employers and workers will be a real fillip for UK competitiveness as we return to growth, delivering more flexible working and a welcome improvement in the work-life balance.”