Media playback is unsupported on your device Media caption Simon Gompertz reports from a steel business in King's Lynn, where more jobs have led to a jump in wages

Unemployment has continued to fall in Britain, while wage growth outpaced inflation at the fastest rate in almost five years.

The number out of work in the UK fell by 97,000 to 1.86 million in the three months to December.

The unemployment rate now stands at 5.7% of the working population, the Office for National Statistics said.

Average earnings including bonuses rose 2.1% in the quarter from a year earlier.

Excluding bonuses, earnings rose 1.7%.

The ONS also said total pay was 2.4% higher in December compared with the same month in 2013 - the biggest lead over inflation since March 2010.

CPI inflation was 0.5% in December, and new data released on Tuesday showed the rate fell to 0.3% in January, its lowest level since records began.

James Sproule, chief economist at the Institute of Directors (IoD), said wages would continue to rise as competition for talent intensified. "Two-thirds of IoD members [are] planning pay rises at least in line with inflation over the coming months," he added.

Image copyright PA Image caption Pay has continued to rise faster than inflation

Self-employment falls

The ONS said the employment rate, or level of people in work, for those aged between 16 and 64 was 73.2% for the three months to December - a joint record high.

The employment rate last reached 73.2% in the December 2004 to February 2005 period, and has not been higher since comparable records began in 1971.

That meant 30.9 million people were in work in the final three months of 2014 - 608,000 more than in the same three months a year earlier.

Over the quarter, the number of self-employed fell 19,000 to 4.4 million.

Long-term unemployment also fell, by 210,000 among those out of work for more than a year, to 638,000.

However, for the October to December period, the unemployment rate for 16 to 24-year-olds was 16.2%, which was unchanged on the previous quarter.

David Kern, chief economist at the British Chambers of Commerce, said the failure of youth unemployment to fall further was a concern: "It is consistently higher than the adult employment rate, so we need to look at ways to bring this down further."

The number of people claiming Jobseeker's Allowance fell 38,600 in January to 823,000, the 27th straight monthly fall.

Pound jumps

The strong labour market and pay figures boosted the value of the pound against other currencies.

Sterling jumped 1.1% against the euro to €1.36 and added 0.5% against the dollar to $1.5431.

The pound was also lifted by the latest minutes from the Bank of England's Monetary Policy Committee (MPC), which showed signs of divisions between the Bank's policymakers.

Although all nine members of the MPC voted to keep interest rates at 0.5%, two members said the decision was "finely balanced", adding: "Given the outlook for inflation beyond the short term, there could well be a case for an increase in Bank Rate later in the year."

The two members were not named, but Ian McCafferty and Martin Weale both voted for rate rises on several occasions last year.

However, the minutes also said that for another MPC member, "the next change in the stance of monetary policy was roughly as likely to be a loosening as a tightening".

Regional picture

The ONS said the unemployment rate was highest in the North East at 8%, with 103,000 people out of work - down 15,000 on the previous quarter.

The rate was lowest in the South West at 4.5%, where the number of unemployed fell by 7,000 to 122,000.

London had the highest number of people out of work at 295,000, up 7,000 to 6.4%.

Of the regions, the unemployment rate was highest in Wales at 6.7%, with Northern Ireland on 5.7% and Scotland at 5.4% - lower than the national rate.

Work and Pensions Secretary Iain Duncan Smith said: "The jobs-led recovery is changing people's lives for the better on a daily basis."

Labour's shadow employment minister Stephen Timms said the fall in overall unemployment was welcome, "but five years of the Tories' failing plan has left working people £1,600 a year worse off since 2010".