The Department for Trade and Industry has announced a rise in the minimum wage.

The minimum wage for workers over 21 is to rise by 7.1 per cent in October - from £4.20 to £4.50 an hour - in line with recommendations of the Low Pay Commission.

Workers aged from 18 to 21 will see their hourly rate go up 20 pence to £3.80 an hour, provisionally rising to £4.10 in 2004.

The seven per cent increase will take effect in October, with a further increase to £4.85 pencilled in for October 2004.

Trade secretary Patricia Hewitt released details of the increase in written parliamentary statement alongside the latest LPC report.

"These increases are well above the rise in average earnings and will benefit more people than ever across the UK," she said.

"We are committed to eradicating poverty pay for all without jeopardising job prospects.

"We are confident that this increase will not have a detrimental effect on either employment or the wider economy.

"The government is pleased to accept the recommended rate increases for 2003 and also to provisionally accept the increases for 2004, subject to consideration of further advice from the commission early next year."

The TUC had earlier demanded a substantial increase in the hourly rate.

It warned that the low paid would be "disappointed" that the commission had not accepted union calls a £5-an-hour wage from next year.

"The continuing evidence that the minimum wage has had little or no negative impact on employment would have justified such an Increase," said general secretary elect Brendan Barber.

"But the rise is still significantly above inflation, and the Low Pay Commission has made it clear that subsequent increases in the minimum wage should continue to be above inflation."

The Confederation of British Industry said the increase struck a "sensible balance".

Digby Jones, CBI director general, said: "This is a sensible balance between prudence and boldness.

"We are pleased ministers have listened to the CBI's argument that anything more than £4.50 an hour could price people out of work and create pressure for increases in higher wage levels.

"But nobody should forget that our most vulnerable companies will be paying the bill and that many will find this rise difficult to afford."