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Whitbread will increase some prices at its chains to counter the cost of the National Living Wage.

The Premier Inn and Costa Coffee owner said it would also "mitigate this substantial cost increase" by cutting costs and increasing productivity.

Also on Tuesday, Manpower said the living wage was sending "shockwaves" through the UK labour market.

The survey from the recruitment firm warned the living wage was prompting employers to cut back on hiring.

The 70p an hour increase to £7.20 an hour from April for workers over 25 was announced by the Chancellor, George Osborne, in the Budget in July.

Manpower's survey of 2,101 employers found that UK jobs market was at its least optimistic level for three years.

James Hick, of Manpower, said some employers may seek to reduce the extra costs by taking on more younger or self-employed workers, who were not entitled to the living wage.

Sudden jump

Chief executive Andy Harrison said Whitbread had long supported a "steady, sustained real increase" for the minimum wage.

However, he added: "The scale of the increase is bigger than we would have expected and clearly employment costs are our biggest single cost."

About 34,000 of Whitbread's 42,000 hourly-paid staff receive less than £7.20 an hour.

Mr Harrison said decisions about what prices would be increased had not yet been made, and that improving productivity would be a priority.

Shares fell 2.9% to £45.75 in afternoon trading on Tuesday, making Whitbread the biggest faller on the FTSE 100.

Image copyright Whitbread Image caption Whitbread continues to expand the Premier Inn chain to new locations such as Dubai airport

Whitbread said on Tuesday that like-for-like sales at Premier Inn rose 4.3% in the 11 weeks to 13 August, with a 4% rise at Costa.

However, that was weaker than the 9.2% and 7.3% increases posted for the same period in 2014.

Overall like-for-like sales were up 3.3% in the 11 weeks this year.

Mr Harrison said Whitbread was on track to meet both full-year expectations and the company's growth targets.

It plans to open about 5,500 rooms in the UK, some 220 net new Costa stores worldwide and to install 700 to 800 new Costa Express machines.

Whitbread also owns the Beefeater, Brewers Fayre, Table Table and Taybarns restaurant chains, where like-for-like sales rose 0.6%.

The weak increase was blamed on a "soft pub restaurant market outside the M25".