The number of people in work has reached a record high of almost 30 million, although more are in part-time jobs than ever, official figures revealed on Wednesday.
According to the office for national statistics, unemployment fell by 50,000 to 2.53m between June and August. Youth unemployment has also fallen below one million, to 957,000.
In addition, the Office for National Statistics reported that part-time employment increased by 125,000 between March and May to a record high of 8.13m.
In a blog for The Huffington Post UK Tony Dolphin, senior economist at the IPPR said the "conundrum" of employment rising despite the double dip recession is "not quite as great as the raw data suggest."
"For a start, GDP in the latest quarter was affected by the extra bank holiday for the Queen’s jubilee. Without that, real GDP would probably have been roughly unchanged over the last year. And private sector employment growth was boosted by 196,000 thanks to the reclassification of FE and 6th form colleges; underlying private sector jobs growth was ‘only’ 628,000," he writes.
The number of people claiming jobseeker's allowance last month also fell by 4,000 to 1.57m while average earnings increased by 1.7% in the year to July, 0.1% up on the previous month.
Reacting to the figures, Mark Hoban, the minister for employment said: "It's a real landmark to see more people in work than ever before. Despite the tough economic times, the private sector continues to create jobs and our welfare reforms are encouraging people to return to work - with 170,000 fewer people on the main out-of-work benefits than in May 2010," he said.
Richard Driver, currency market analyst at Caxton FX said the figures would boost the government.
"This really is encouraging stuff. The labour market continues to prove the doubters wrong and this is a real bonus for the government."
But shadow work and pensions secretary Liam Byrne said it was not time to break out the bunting yet. "Today’s fall in unemployment is a welcome chink of light in a very bleak economic outlook. But frankly, when the welfare bill is spiralling by over £24 billion over this parliament, ministers are wrong to be breaking out the bunting."
Howard Archer, chief UK and European economist at IHS global insight said the figures showed an "impressively resilient and healthy labour market data which gives a lift to recovery hopes."
"It is evident that ongoing restrained earnings growth as well as significant increases in part-time jobs and self-employment is helping to keep unemployment down. In addition, it is likely that many companies are hoarding labour especially to keep hold of skilled and experienced workers."
The fall in youth unemployment is the first time the figure has gone below one million for nearly a year.
Experts have warned of the potentially devastating effects of unemployment on young people in the coming years.
Chris Goulden, Head of Poverty at the Joseph Rowntree Foundation, said: “It’s important we have measures that provide more full-time, decent-paying jobs that can ensure work pays.
"A lack of success in the jobs market saps confidence, demotivates and leaves a scar across a generation of young people, while part-time, low-pay work traps people in poverty.
“On the day the latest unemployment statistics are released, this report makes for grim reading for young people. The intense competition shows the main problem is more fundamental - a major shortage of jobs.”