LONDON (Reuters) - Britain’s labor market confounded a sluggish economy in the second quarter as the unemployment rate fell to its lowest since 1975.

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Wage growth remained muted, however, and analysts said the tepid economy could yet take a toll on jobs.

Sterling jumped nearly half a cent against the dollar and British government bond prices slid after data on Wednesday showed the jobless rate edged down to 4.4 percent in the three months to June, against expectations for it to hold at 4.5 percent in a Reuters poll of economists.

Figures on wage growth also came in better than expected but they were flattered by bonus payments in the financial sector. The underlying picture still showed households feeling the strain of rising prices since last year’s Brexit vote.

There were also signs the decision to leave the European Union is having an impact on foreign workers. The number of EU-born people working in Britain rose just 1.6 percent year-on-year in the second quarter, the weakest increase in seven years.

Andrew Sentance, senior economic adviser at accountants PwC and a former Bank of England rate-setter, said the labor market data were consistent with modest economic growth.

“Though unemployment is at its lowest level since the mid-1970s, it would not be surprising to see the jobless rate edging up later this year in response to the current economic slowdown,” he said.

Inflation has eased slightly since May when it hit an almost four-year high of 2.9 percent, but prices are still rising faster than wages.

The Office for National Statistics said workers’ total earnings including bonuses rose by an annual 2.1 percent in the three months to June, compared with 1.9 percent in the period to May, boosted by a 27 percent surge in bonus payments in the financial sector in June alone.

Economists taking part in a Reuters poll had expected wage growth of 1.8 percent.

Overall wage growth in real terms fell by 0.5 percent, the same as in the three months to May and one of the steepest declines in the past three years.

Excluding bonuses - which analysts say gives a better picture of the underlying trend - earnings in nominal terms rose by 2.1 percent year-on-year, the fastest rate since January and beating expectations for a 2.0 percent rise.

The Bank of England is watching wage growth closely as it gauges whether the increase in inflation is creating longer-lasting pressure on prices. It expects wages to rise by 2 percent this year before picking up in 2018 and 2019.

Separate ONS figures showed productivity -- perhaps Britain’s biggest economic weak point since the financial crisis -- fell by 0.1 percent in output-per-hours terms during the second quarter compared with the first quarter, when it fell 0.5 percent.

“Given the uncertain economic and political outlook, it may be that several companies are trying to meet extra work by taking on labor rather than commit to investment,” said Howard Archer, chief economic adviser to the EY ITEM Club.

While growth of workers born in other EU countries hit a seven-year low during the second quarter, the number of workers born outside the EU working in Britain continued to rise strongly - up 225,000 or 7.3 percent compared with a year ago.