Unemployment fell unexpectedly over the three months to June, while economic inactivity climbed to a 13-year high, official figures showed on Tuesday.
According to the Office for National Statistics, unemployment came in at 4.2% over the three months, down from 4.4% previously and against expectations for 4.5%.
The number of people out of and not looking for work hit its highest since 2011 meanwhile, with 22.2%, or 9.5 million people, said to be economically inactive.
Chancellor Rachel Reeves commented that there was “more to do” in supporting people into work, with many out due to long-term sickness, adding “this will be part of my budget later in the year”.
She said: “I will be making difficult decisions on spending, welfare and tax to fix the foundations of our economy so we can rebuild Britain.”
Wage growth also slowed over the period, from 5.7% to 5.4%, coming in at its lowest rate in almost two years.
"Today’s data is consistent with a gradual and cautious dialling down of restrictive policy" by the Bank of England, Deutsche Bank analysts commented on the figures.
"But, as we have noted many times before, firming GDP growth, if sustained, could lead to a firming labour market recovery - which could result in a more shallow rate-cutting cycle."