Graduate pay is set to increase by 4% this year after an "unprecedented period" of stagnation, a new report has predicted.

Average salaries for university leavers are expected to reach £26,000 after staying at £25,000 since 2009, the Association of Graduate Recruiters (AGR) said.

The rise will be the biggest for seven years, although the AGR said graduate vacancies would fall by 1.2% in 2012 after a slight increase last year.

Carl Gilleard, chief executive of the AGR, said: "The predicted increase to graduate salaries is significant and sizeable, particularly given the context of starting salaries remaining stagnant for the past three years.

"This will no doubt be welcome news to the Government and the higher education sector, but moreover to graduates themselves.

"The findings show that the market is predicted to remain relatively stable, which is a relief and should be seen as good news against an uncertain national, European and global economy.

"With the job market intrinsically linked to business confidence, I am cautiously optimistic for graduate recruitment in 2012 and it is encouraging to see that only a slight drop is predicted."

A survey of more than 200 AGR members found that half had not heard of two year degree programmes, which have been introduced by several universities this academic year, with some voicing concern that students would be prevented from developing skills due to heavy workloads.

Mr Gilleard added: "Employers predict two year degrees will prove popular with students.

"However, employers do value graduates that have work experience, and those students that have undertaken a year in industry as part of a four year degree.

"Consequently, there are genuine concerns surrounding students undertaking two year degrees as they do not have as much time to gain workplace experience."