Graduate starting salaries are continuing to rise despite stiff competition for vacancies, a new report has found.

The Association of Graduate Recruiters has found that the average new graduate now earns £20,300, an increase of 4.1 per cent since January.

While the number of vacancies posted fell by 3.4 per cent, the average number of applications per post increased from 37 to 42.

Of those employers questioned, 42 per cent reported a fall in the number of vacancies, compared to 36 per cent reporting an increase.

One in four employers surveyed reported that recruitment had remained at 2002 levels.

However, predictions for 2004 remain positive.

Of those polled, more than half predicted similar vacancy rates next year, compared to just 14 per cent expecting a fall.

"This survey shows that graduate level vacancies are stabilising somewhat - the modest falls in vacancies this year and last need to be balanced against the large rises we saw in previous years," said Carol Gilleard, chief executive of the Association of Graduate Recruitment.

"This is definitely nowhere near a crisis comparable to the situation in the early '90s, and it is important that those graduating this summer do not lose their nerve.

"Indeed, one very positive piece of news is that starting salaries have continued to rise, with the median salary having well and truly broken through the £20,000 barrier. And looking back, starting salaries have more than doubled in the last 15 years."

NUS national president Mandy Telford urged students "not to panic."

"The AGR represents only a fraction of the careers available to graduates and competition for vacancies at blue-chip companies is always fierce," she said.

"Many students who choose to work in the public or voluntary sector or for SMEs will not be guaranteed starting salaries of £20,000. We must be careful in perpetuating the myth that all students can expect inflated salaries on graduation - this simply is not the case."