By Jonathan Davies

Unemployment fell by 115,000 to 1.96 million in the three months between July and September, according to Office for National Statistics (ONS).

It was the 18th consecutive quarterly fall in unemployment.

Pay, excluding bonuses, grew by 1.3% in the period. It is the first time in five years that pay has risen more than inflation as measured by the Consumer Prices Index (CPI).

Although the economic picture, particularly unemployment, has improved massively over the past year, many people have said they are yet to see the benefit with pay barely growing.

But today's figures are the first suggestion that pay is starting to increase at least in line with inflation, meaning people's cost of living could start to ease.

The number of people claiming Jobseeker's Allowance fell by 20,400 to 931,700. It was the 24th consecutive month in which the figure fell.

Work and Pensions Secretary Iain Duncan Smith said: "If you take out bonuses, which are usually due to the financial sector and distort the figure, they show pay is rising above inflation and will continue to do so."

Neil Carberry, CBI Director for Employment and Skills, said: “The good news is that businesses are creating more full-time jobs for people as the recovery continues.

“Over the past few months, we’ve seen companies’ pay awards start to recover, and this is feeding through to average earnings.

“Nevertheless, many people are still finding times tough. That’s why the CBI has put forward a blueprint for action on living standards including cuts to employees’ National Insurance and childcare costs. Much more remains to be done to ensure growth works for everyone.”

John Allan, FSB National Chairman said:

“It is good to see unemployment continuing to fall and wages beginning to rise.

"What is most encouraging and indicative of real economic progress is that more and more new jobs appear to be full time roles and average earnings are beginning to increase above inflation.

“To reach full employment ministers should focus on boosting skills while maintaining labour market flexibility. We know that taking on a member of staff can be expensive for small firms, yet they continue to be the source for a large proportion of new job creation. If this is to continue, Government should redouble its efforts to cut the costs of doing business.”

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