LONDON Fewer Britons claimed unemployment benefit in May than at any time in the last two years although wages clawed back only a bit of ground lost to inflation, data showed on Wednesday.
In the latest sign the British economy is shrugging off two years of stagnation, the number of people claiming jobless benefit dropped by 8,600 last month, its seventh consecutive fall. A Reuters poll had forecast a decline of 5,000.
The Office for National Statistics also said the number of people without a job, based on the wider International Labour Organization measure, inched down by 5,000 in the three months through April to 2.51 million.
The jobless rate held steady at 7.8 percent, as expected.
As the data was released, Bank of England policymaker Paul Fisher said the economy still needed nursing back to health.
"I think we are in a situation where growth is going to be slow for a long time. The second quarter, as it happens, looks very good but these things will flip from one quarter to another," Fisher told a business conference.
He is in a minority of Bank of England rate-setters who want to buy more government bonds to give the economy a boost.
Sterling rose after the data and gilts slipped as investors sensed a smaller chance that new BoE Governor Mark Carney will press for more bond-buying as soon as he takes over in July.
Analysts reckoned the improvement in employment, which included an extra 24,000 people in work, was likely to continue.
"The labour market tends to be a relatively lagging indicator, so we could see a further improvement in jobs growth in the coming months as the recent pick-up in economic activity feeds through," said Vicky Redwood at Capital Economics.
"However, we are unlikely to avoid further falls in real pay for the next year or so, suggesting that it will nonetheless remain a struggle for any consumer recovery to gain traction."
Prime Minister David Cameron, facing an election in less than two years, hailed the numbers as a sign that the economy was on the mend and he highlighted a rise in private sector employment even as public sector jobs fell.
He accused Ed Miliband, leader of the Labour party, of talking down the economy after Miliband, speaking in parliament, tried to keep the focus on what he called a "living standards crisis" as wages remained below inflation.
Britain's labour market has proved resilient despite the downturn of the past few years, helped by the willingness of workers to accept below-inflation wage growth.
The Institute for Fiscal Studies said on Wednesday that real wages in Britain since 2008 have fallen by more than in any comparable five-year period while employment has dropped by much less than in previous recessions.
Wednesday's data from the ONS represented a return to the trend of steady but slow improvement after some weakness in the labour market earlier this year.
Average weekly earnings grew by their fastest pace so far in 2013, up 1.3 percent in the three months through April, but that was still a long way short of consumer price inflation running at 2.4 percent.
In April alone, earnings jumped 3.3 percent although the increase was boosted by companies paying bonuses a month later than in 2012, an ONS official said, as they took advantage of a cut in income tax for high earners.
Excluding bonuses, pay growth was 0.9 percent in the three months to April and 1.3 percent in the month of April alone.
Wednesday's labour market data came a day after another ONS report showed Britain's industrial output rose for a third straight month in April. A series of upbeat business surveys last week also suggested the recovery was firming.
(Additional reporting by David Milliken; Editing by Catherine Evans)