The jobless rate stood at 4%, the least since February 1975, the Office for National Statistics said on Tuesday. Economists had expected it to stay at 4.2%.

The decline helps to explain why the Bank of England increased interest rates this month. Policy makers believe inflationary pressures are building in the labour market as skill shortages force some employers to raise wages to attract and retain staff.

Still, there was little sign of overall wages taking off in the latest data — pay growth slowed to a nine-month low of 2.4% between April and June — but the BOE sees a pickup toward 3.5% this year.

Much depends on productivity. Without a significant improvement, firms may find their profit margins coming under pressure and increase prices to compensate. Flash figures for the second quarter Tuesday show output per hour rose 0.4%, leaving productivity up just 1.5% on the year.

BOE officials expect unemployment to fall to 3.9% this year and Governor Mark Carney signalled that further rate hikes will be needed to return inflation to target, assuming Britain avoids a chaotic departure from the European Union next year.

Wage growth excluding bonuses slowed to 2.7%, the weakest since January but still ahead of the 2.4% rate of inflation. Upward pressure on settlements is expected to come from the public sector, where millions of workers will this year benefit from the easing of a cap on pay increases in place since 2010.

There were some signs of weakness in the labour market report. While vacancies were at a record, the jobless rate fell thanks to a drop in economic activity, and employment rose by just 42,000, less than half the increase expected.

The increase in employment over the past year was driven by UK nationals as foreigners arrive in fewer numbers since the Brexit vote. There was a record drop in employment among EU nationals, driven by citizens of the eight countries that joined the bloc in 2004.