British employers plan smaller pay rises over the coming year than they did three months ago, the first such drop in nearly four years, reflecting less willingness to tolerate higher labour costs, a major survey showed on Monday.

The figures are likely to increase the confidence among Bank of England policymakers that domestic inflation pressures are easing following recent sharp falls in energy prices, paving the way for lower interest rates later this year.

British employers expect to raise basic pay by an average of 4% over the next 12 months, down from an expected rise of 5% through 2023 and in late 2022, according to a survey by the Chartered Institute of Personnel and Development (CIPD).

This is the first fall since early 2020 when Britain was hit by the COVID-19 pandemic.

"This feels like a key moment in the UK labour market," CIPD economist Jon Boys said.

The estimate is based on a poll of 2,006 employers conducted by YouGov from Jan. 2 to Jan. 22.

While pay rises in the private sector and non-profits were in line with the median, public-sector employers expect to raise pay by 3% and to recruit staff at the slowest pace since 2019.

Across employers as a whole, the proportion saying that they were funding pay rises through reduced staffing rose to 21% from 12%, while the proportion who were absorbing higher wage costs in profit margins or general overheads dropped to 37% from 50%.

This month the BoE said it was starting to consider cutting interest rates from a near 16-year high of 5.25%, but annual wage growth of over 6% meant a forecast fall in inflation to its 2% target risked proving temporary.

A BoE survey showed employers expected to raise pay by 5.2% this year.

(Reporting by David Milliken. Editing by Andrew MacAskill)