The proportion of small businesses that are increasing wages for their employees has hit a three-and-a-half year high.
The latest research by the Federation of Small Businesses (FSB) reveals that 66% of SMEs have increased salaries over the past year, the highest proportion since Q4 2014.
Also at a three-and-a-half year high is the share of small business owners awarding pay increases of 2% or more (50%). A quarter (25%) have increased pay by 4% or more. Eight in ten (79%) small firms say they have maintained or increased headcounts over the past three months.
Mike Cherry, FSB national chairman, said: "Small firms are playing a critical role in keeping our jobs market buoyant. It's great to see that such a big proportion are in a position to take on more staff and up pay levels."
The latest data from the Office for National Statistics (ONS) shows that wages rose faster than inflation in the three months to March. Wages rose at an annual rate of 2.9% in Q1 2018 while the inflation rate was 2.7% over the same period.
However, the figures also show that there has been a decline in productivity. Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said: "The decline in UK productivity in the first quarter is a clear warning sign that positive real wage growth should not be taken for granted. While businesses are reporting some upward pressure on pay, sluggish productivity and high upfront business costs are restricting the extent to which wages are able to rise."
He added: "The persistent weakness in UK productivity reflects the long-standing structural problems in our economy - from a chronic skills shortage, to our creaking infrastructure and the escalating cost of doing business in the UK. Delivering solutions to these key business concerns would help boost investment and drive the productivity gains we need to boost the UK's long-term growth potential."