The economy will suffer unless employers pay the best they can afford, according to the TUC.

The announcement comes following statistics from the Incomes Data Service showing median pay rises have dropped 1% from May to July 2009 to 2.3%.

TUC general secretary Brendan Barber said: "The main period for pay negotiations is now past and this analysis is based on a relatively small sample of pay deals settled fairly late in the year - during the year to date the median pay settlement is 2.3% and earnings are continuing to grow.

"While unions have negotiated pay freezes and short-time working in companies badly hit by the recession, many employers can afford settlements that provide real growth in wages.

"If the trend in this survey continues, it will have serious knock-on effects for the economy if consumers have less money in their pockets."