The number of people unemployed and claiming benefit in the UK fell to just over one million in July, the Office for National Statistics said.

This brings the rate of unemployment to 3.7%, the lowest rate since November 1975, based on the number of people claiming benefit.

The number claiming unemployment benefit fell by 22,700, more than expected by analysts.

Average earnings grew by 4.1% in June, its lowest rate for three years. This compares with 4.6% in May.

Together, the two sets of data can be taken as reducing the chances of further rises in interest rates in the near future.

The Bank of England's monetary policy committee has left rates steady at 6% for the last six months. Some members of the MPC feared that falling unemployment would lead to high wage inflation, but so far there is little evidence of this.

If unemployment is calculated on a three-monthly basis using methods set out by the International Labour Organisation, the number of jobless fell by 91,000 to 1.62m.

This figure includes people who are not on benefit and results in an unemployment rate of 5.5%.

Subdued wages

The slow rise in wages is surprising given the tightness in the job market.

Analysts had expected that earnings growth would slow again as millennium-related bonuses continue to drop out of the figures.

The ONS did indicate that part of the reason for the subdued rise in wages is the fact that bonuses are lower this year than last year.

ABN Amro's James Carrick welcomed the data. He said: "The earnings data are obviously better than expected. It contrasts with the continued tightness of the labour market shown by the greater than expected fall in unemployment...These data will support those on the MPC who believe in a 'wait and see' policy."