LONDON -- U.K. wages rose an average 3% in the first quarter, a survey showed Tuesday, indicating incomes continue to be squeezed by faster-paced price increases.

The annual inflation rate was 3.5% in the period.

"The failure of wage rises to keep up with increases in the cost of living is placing downward pressure on household incomes, alongside other factors," said Ken Mulkearn, editor of the pay report from Incomes Data Services. "This in turn is having an effect on consumer spending."

Bank of England policy makers should be reassured that wage growth is subdued because it points away from an inflationary spiral where companies lift prices to compensate for their higher labor costs.

IDS examined 114 wage settlements for its monthly report and found no difference between average awards in the manufacturing and services sectors. Finance and retail workers typically got below 3%, while employees at media firms and transport companies were frequently offered above-average deals, it said.

IDS said early data indicate the average pay increase in the three months to April fell to 2.9%. It stressed the figure is preliminary.

-By Jason Douglas, Dow Jones Newswires; 44-20-7842-9272; jason.douglas@dowjones.com