Most pay deals were worth between 2% and 3% in recent months, below the rate of inflation, a study showed today.
An analysis of settlements mainly in private firms, covering 1.5 million workers, revealed a fall in the number of higher end increases.
Fewer than one in five of the 69 settlements studied by IDS was worth 3% or more, with a similar number of pay freezes in the three months to September.
Average rises in the public sector were worth 2%, although recent settlements were part of long-term deals agreed before the announcement of a pay freeze for workers.
Ken Mulkearn, editor of the IDS Pay Report, said: "The modest loosening of pay policies that we have seen across the private sector during 2010 continues. The level of settlements reflects the broad recovery in profitability, and higher inflation to some extent as well.
"If these indicators remain on track, in 2011 we might see 3% emerge as the central figure for pay budgets. However, affordability still weighs heavily in the balance, and the outlook for both the economy and the labour market is key.
"In line with this, reward managers as well as economists will be watching closely to see whether the recent spending review has any wider effects."
TUC General Secretary Brendan Barber commented: "This latest survey shows that the overwhelming majority of recent pay deals have been below inflation, making them pay cuts in real terms.
"During the recession, many workers accepted shorter working hours and wage freezes to keep their jobs. But continuing pay restraint will squeeze incomes and threaten living standards, dragging down an already fragile economic recovery.
"Pay freezes and small rises are the wrong policy at the wrong time."
RPI inflation is currently 4.6% while CPI inflation is 3.1%.
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