The UK unemployment rate declined further in the second quarter to the lowest level in 42 years and earnings growth exceeded expectations, but continued to lag behind inflation, squeezing consumers' disposable income.

The ILO unemployment rate fell to 4.4 percent in the second quarter from 4.9 percent a year ago, data from the Office for National Statistics showed Wednesday. This was the lowest since 1975.

Economists had forecast a rate of 4.5 percent, the same as seen in the three months to May.

The number of unemployed decreased by 57,000 from the first quarter to 1.48 million.

The employment rate was 75.1 percent, the highest since comparable records began in 1971.

Average earnings including bonuses increased 2.1 percent annually in the second quarter, faster than the expected 1.8 percent. Nonetheless, this was weaker than current inflation of 2.6 percent.

The latest labor market figures showed some signs that the tightening in the labor market may be at long last leading to a recovery in wage growth and provide us with optimism that the real pay squeeze should come to an end next year, Ruth Gregory, an economist at Capital Economics, said.

If the pick-up in wage growth is sustained, consumers won't rein in their spending, increasing the chance of an earlier interest rate hike, the economist added.

In the Inflation Report, the Bank of England had projected average earnings to grow 2 percent this year and 3 percent next year.

The ONS report also showed that the claimant count held steady at 2.3 percent in July. The number of people claiming unemployment benefits decreased by 4,200 from June.

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