UPDATE 1-Britain's Costa Coffee joins rush to hike workers' pay

(Adds comments from analyst, background)

By Paul Sandle

LONDON, Sept 30 (Reuters) - Customers at Costa Coffee mayget an extra-caffeinated level of service on Thursday morning,when the chain becomes the latest British retailer to hike wagesmonths before a government measure to raise minimum pay levelscomes into effect.

The chain, part of leisure group Whitbread, said onWednesday its 12,500 trained baristas would earn a minimum of7.40 pounds ($11.21) an hour, and 8.20 pounds in London, some 20pence above the new "living wage" coming in next April.

Costa is following rival Starbucks and retailersMorrison and Lidl in announcing pay hikes for thousandsof staff. Managing Director Chris Rogers said the rise had beenin the works for months and was not prompted by the government'sannouncement in July.

"We've been planning for some time to look at the pay ratesbecause we think it's really important our team share in thesuccess of our business," he said. "It's not a knee-jerkreaction."

Whitbread, along with clothing retailer Next, pubsgroup Wetherspoon, and care workers provider Mears, had warned they would struggle with higher costs as aresult of the minimum wage rise.

The wholesale and retail, hospitality and support servicesindustries combined employ 46 percent, or 2.7 million, of thoseearning below the new minimum, according to the ResolutionFoundation think tank.

Conor D'Arcy, policy analyst at the foundation, said themove showed big employers in low-paying sectors could adjust.

Costa's Rogers said it was difficult to calculate the netcost of the rise, because the company was also making better useof technology and improving productivity.

But he said it would not stop the group opening new stores."(The rise) underpins our growth plans, because people are suchan important ingredient in our business, so the better people wehave, the better experience our customers will have," he said.

Finance Minister George Osborne in July announced a 10.7percent rise in the minimum wage to 7.20 pounds an hour fromnext April for workers aged over 25, rising to 9 pounds an hourby 2020, saying Britain "deserved a pay rise".

The higher wage, which comes as the government curbsbenefits that top-up pay for many low earners with children,will cost jobs, but Osborne said the effect would be small.

($1 = 0.6604 pounds) (Editing by David Holmes and Mark Potter)