LONDON (Reuters) - Growth in pay settlements by British employers fell sharply late last year and is expected to cool further in 2025, according to a survey that showed firms under pressure due the Labour government's increase in payroll taxes.

Human resources data firm Brightmine said on Wednesday that the median pay award fell to 3.3% in the three months to December, the lowest since December 2021, and down sharply from 4% in the three months to November.

Brightmine said the median forecast for pay settlements in 2025 stood at 3%, down from 4.5% in 2024, reflecting concerns about the economy and a more cautious approach to pay awards.

Preliminary data for January suggested a median basic pay award in the month of 3.5%.

Finance minister Rachel Reeves' increase in social security contributions paid by employers and the minimum wage from April were expected to add pressure on firms' pay budgets, it said.

"Businesses are feeling financial pressure as we kick off the beginning of the year and are looking for creative ways to minimise the impact on employee pay packets – whether that’s passing costs onto consumers or reducing the number of employee hours worked especially for entry-level, National Living Wage jobs," Brightmine senior content manager Sheila Attwood said.

Data published on Tuesday showed private-sector pay excluding bonuses - watched closely by the Bank of England as a gauge of domestic inflation pressure - rose to 6.0% in the three months to November, the highest since February 2024.

Some economists said the pickup appeared to reflect one-off factors and broader weakness in the labour market would probably keep the BoE on track to cut rates next month.

(Reporting by Suban Abdulla; Editing by William Schomberg)