The Government's plans to increase the minimum wage rate to more than £5 an hour have received a mixed reaction from business groups.

Prime Minister Tony Blair has announced that the main adult rate will rise from £4.85 to £5.05 an hour in October this year, and to £5.35 next year.

The rate for 18 to 21-year-olds will also rise, initially from £4.10 to £4.25.

The Federation of Small Businesses (FSB) warned that increases in the minimum wage should not be 'automatic', but a response to economic conditions.

Alan Tyrell of the FSB said, 'Continuous year-on-year above inflation increases in the NMW are dangerous for the economy and send the wrong message to employers'.

The British Chambers of Commerce (BCC) also opposed the plans, citing a recent survey which revealed that 80% of businesses would like future rises to be capped.

David Frost of the BCC said, 'Increases at this rate are simply not sustainable and could have a serious impact on jobs and competitiveness'.

Meanwhile, the Confederation of British Industry welcomed the fact that the 2005 increase was 'more in line' with earnings predictions, and described the increase as 'a sensible reaction to business concerns'.