Labour costs take their toll on employers

RISING labour costs are swallowing the benefits businesses can enjoy from cheaper borrowing.

Firms which retained staff during the recession are now starting to "pay the price" because of the costs involved.

Erik Britton, director of Fathom Financial Consulting, which conducted research for London Chamber of Commerce members, 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: "Investment will be key to ensuring the UK recovers, 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."