The National Minimum Wage will rise again from April, adding an extra 82p to hourly pay amid a cost of living crisis that could leave workers paying 7% more for the cost of goods from next month.
From April 1, the hourly rate for people aged 21-22 will rise to £9.18 an hour, up from £8.36.
Chancellor Rishi Sunak said the National Living Wage for over-23s would increase to £9.50.
The apprentice rate will also rise, up from £4.81 an hour to £4.30.
But Tory ministers have previously claimed they would raise the minimum wage to £10.50 an hour and expand the eligibility to over-21s by 2024.
That is because ministers pledged future rises would be pegged to two-thirds of median earnings, higher than the previous 60% target.
New minimum wage rates from April 1 and who qualifies:
- National Living Wage (aged 23 and over) - £9.50 an hour
- 21-22 year-olds - ££9.18 an hour
- 18-20 year-olds - £6.83 an hour
- 16-17 year-olds - £4.81 an hour
- Apprentices - £4.81 an hour
Ministers claim the pay rise equates to £1,000 more a year for the average worker from April.
However, questions have been raised over whether the hikes are enough to ease the burden on struggling families in the midst of a cost of living crisis.
Recent labour market data has shown how wage rises are struggling to keep pace with spiralling inflation.
Wage growth in the UK is already far behind rising prices, Office for National Statistics (ONS) data shows.
Between October and December 2021, average weekly pay packets across Britain fell by -1.2%, reflecting how wages are struggling to keep up with the rising cost of living.
When adjusted for inflation, regular pay actually fell on the year at -0.8%.
With inflation expected to rise above 7% this year, the Bank of England has warned that this hit to workers will likely get worse.
"These figures confirm working people still face a fragile recovery in the face of a growing cost of living crisis and spiralling inflation," said Pat McFadden MP, Labour's shadow chief secretary to the Treasury, in response to the data.
Britain's cost of living squeeze has seen a surge in prices across the board led by higher household bills but also including rising petrol, energy, and food costs.
It is set to worsen in the spring after Ofgem announced an increase in the energy price cap, which will add around £700 on average to annual gas and electricity charges for millions of consumers.
"The good news is that the UK economy is continuing to create jobs," said Matthew Percival, director for people and skills at the Confederation of British Industry (CBI). "The bad news is that businesses are struggling to hire and pay is failing to keep up with inflation."
"Bold action is needed to go for growth, with steps to address skills and labour shortages," he added.
The most recent figures show that job vacancies hit a new record high of 1.3million, while unemployment fell to 4.1%, only slightly above pre-pandemic levels, according to the ONS.
Last week, the Bank of England governor Andrew Bailey was criticised after suggesting that employers should think twice about giving their staff pay rises.
The Bank has acted to combat accelerating price growth by hiking interest rates to 0.5%. But if employees ask for big wage increases to match the cost of living, its task could be made harder.
That is because of the risk that employers would then pass on those higher wage costs to consumers in the form of prices, leading to even higher inflation.
Speaking on the minimum wage rise, Shadow Treasury Secretary Bridget Phillipson said: “This underwhelming offer works out at £1,000 a year less than Labour’s existing plans for a minimum wage of at least £10 per hour for people working full-time.
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"Much of it will be swallowed up by the Government’s tax rises, universal credit cuts and failure to get a grip on energy bills.”
Graham Griffiths, director of the Living Wage Foundation, said there was still a "substantial gap" with the real Living Wage, which is calculated to take into account living costs.
“The past 18 months has been a perfect storm for workers and families, with costs like fuel and energy rising and cuts to household incomes, so it's positive to see a significant increase in the minimum wage," he said.
"However, the real Living Wage, unlike the government minimum, is calculated annually based on covering living costs.
"Next month, as part of Living Wage Week, new Living Wage rates will be announced that reflect the rising living costs we've all been experiencing.
"These rates will see a substantial gap remain between the real Living Wage and the new government minimum wage.
"We all need a wage that provides a decent standard of living. If we're to recover and rebuild over the coming months and years, we'll need to see more employers commit to go beyond this new government minimum, do the right thing, and commit to pay a real Living Wage."
