The number of people out of work and claiming benefit fell by 22,300 to 1.2m, or 4.2% of the workforce.

It is the sixth month in a row that the jobless total has dropped. The Office for National Statistics says that unemployment is still on a downward trend.

The broader measure of unemployment, preferred by the government, the ILO rate, also fell to a new low of 5.9% for the three months to July, compared to 6.2% in the previous three months.

The ILO rate includes people who are not eligible for unemployment benefit but are looking for jobs.

Forecasters were surprised by the strength of the labour market.

Union and industry leaders are urging the Bank of England not to use the figures as another reason to raise interest rates.

TUC General Secretary John Monks said: "This is more good news on jobs and pay and no basis for any further increases in interest rates."

Average earnings

Economists and the stock market will be looking closely at the average earnings figures, which could indicate inflationary pressures.

Average earnings rose at an annual rate of 4.6% in July, compared to 4.4% in June. But the government said that the figure in June had been boosted by bonus payments.

Wages and salaries in the booming service sector are rising at around 5% a year, however, compared to only 3.4% for manufacturing.

The statistics on pay are closely watched by the Bank of England's Monetary Policy Committee and any sharp rise in earnings could herald further hikes in interest rates.

Neil Parker, senior economist at the Royal Bank of Scotland, said inflation fears should not be overplayed.

"You could see this as pointing to inflationary pressure rising and more rate rises, but we don't believe that is necessarily the case ...manufacturing employment fell by 154,000 in the three months to July. The Bank has got to look at that and at manufacturing unit wage costs, which rose by just 0.5%. That does not exactly suggest there is inflationary pressure."

But other economists were more concerned.

"The economy keeps generating loads of jobs, unemployment continues to fall and going forward you have to feel there is going to be upward pressure on earnings growth," said Deutsche Morgan Grenfell economist Ciaran Barr.

More people in work

Meanwhile, the total number of people with jobs has reached a new high.

The number of people in work in the UK rose to a record 27.4m in three months to July, 54,000 higher than the previous three months and almost 300,000 higher than the same period a year earlier.

Employment minister Andrew Smith said: "I strongly welcome the fact that more people than ever before are in jobs, with unemployment down yet again and still more vacancies becoming available.