The move puts Britain on track to meet its target for the minimum wage to reach 60% of median earnings by 2020, it added.
Britain’s unemployment rate has fallen to its lowest since the 1970s and employment recently hit a record high, despite the minimum wage rising by more than a quarter since 2015 to now stand at 8.21 pounds an hour for those aged 25 and over.
The rise to 8.74 pounds is due to take place on April 1.
Minimum pay rates for younger workers will also increase by between 4.6% and 6.5%, depending on their age, the government said. The British Chambers of Commerce (BCC) said: “Raising wage floors by more than double the rate of inflation will pile further pressure on cash flow and eat into training and investment budgets.
“For this policy to be sustainable, the government must offset these costs by reducing others – and impose a moratorium on any further upfront costs for business.”
Britain’s minimum wage was introduced under Labour Prime Minister Tony Blair in 1999, and rose relatively modestly following the annual advice of a committee of academics, trade unionists and business representatives.