Unemployment is falling at its fastest pace in a decade, official figures reveal, in a boost for George Osborne as he prepares to deliver his Mansion House speech. The Office for National Statistics (ONS) said the number of people unemployed fell by 88,000 in the three months to April, to 2.43 million — the largest drop since the summer of 2000. The unemployment rate was 7.7%, down from 8% three months earlier.

The positive jobs figures are good news for the chancellor, who has been forced to defend his economic policy in the face of flagging growth.

However, analysts warned that there were signs of weakness in the data, with the more timely claimant count measure of unemployment showing a much worse than expected rise of 19,600 in May to 1.49 million. That was the third consecutive increase in the claimant count.

Alan Clarke, of Scotia Capital, said the claimant count was an early sign that the labour market could deteriorate. "With GDP growth unlikely to stray very far above zero over the next 6 months, we should brace for further increases in unemployment."

There was also fresh evidence of the painful squeeze facing households, as pay increased at an annual rate of just 1.8%. That means on average, incomes are rising at less than half the rate of inflation, eating into families' standard of living.

Hetal Mehta, of Daiwa Securities, said that weak wage growth would reassure the doves on the Bank of England's monetary policy committee who want to leave interest rates on hold at their record low.

"Wage growth remains well below levels that the Bank would consider a threat to inflation. This combined with inflation remaining steady and weak retail indicators reinforce our view that the Bank of England will stay in wait-and-see-mode with regard to interest rates until next year," she said.

Separate figures also revealed the rapid pace of job-shedding in the public sector in the first three months of the year, with the bulk of job cuts concentrated in local government. The ONS said the number of people employed in the public sector fell by 24,000 in the first quarter of 2011 - or 39,000 when temporary staff hired to work on the census are removed. Over the same period, employment in the private sector increased by 104,000, more than soaking up the government job losses.