The announcement, made yesterday, is in line with the recommendations from three pay review bodies for the armed forces, NHS, and doctors and dentists.
It follows last week’s news that inflation hit 2.3% in February, up from 1.8% in January.
Chief secretary to the Treasury David Gauke said: “It is always important to recognise the amazing work undertaken every day by our armed forces, doctors and dentists and NHS staff.
“The settlement for these key workforces protects jobs and helps repair the public finances.”
He added that the OBR has forecast that the current pay policy will protect approximately 200,000 jobs.
However, the announcement was criticised by unions.
Christina McAnea, spokeswoman for unions representing NHS staff and head of health at Unison, said: “This deal amounts to less than £5 a week for most midwives, nurses, cleaners, paramedics, radiographers and other healthcare staff.
"It's a derisory amount in the face of soaring fuel bills, rising food prices and increasing transport costs.
"The government's insistence on the 1% cap has tied the PRB's hands. As the PRB itself admits, it can no longer prevent health employees' pay falling way behind wages in almost every part of the economy.”
McAnea warned that the NHS would struggle to hold onto experienced employees without improved pay, adding: “The NHS staffing crisis will worsen as people leave for less stressful, better rewarded jobs elsewhere.”
The GMB union branded the 1% pay rise “ miserly and cruel” as it cited ONS figures showing average weekly earnings in the private sector were higher than in the public sector in 11 out of 12 months last year – the first time the private sector outperformed the public sector on the measure since 2008.
Rehana Azam, GMB national secretary for public services, said: “Dedicated professionals are hurting and the quality of services is deteriorating for everyone else.
“Theresa May talks about helping those who are ‘just about managing,’ but it’s clear that she doesn’t include over five million public sector workers.
"Imposing a 1% settlement is an insult to our selfless NHS staff and other public sector workers – who keep us safe day in, day out.”
However, a recent report by the Institute for Fiscal Studies concluded public sector workers are still, on average, being paid hundreds of pounds a year more than their private sector counterparts despite nearly a decade of austerity.
According to the IFS research, despite years of pay cuts following the 2008 financial crisis, public sector staff still have higher salaries than private sector workers with the same education and experience.
The same report estimated that private sector pay would outstrip public sector pay by 2019.
