Official figures show that the number of people in the UK claiming jobless benefit in October rose by its smallest amount in 18 months, while the number of people in work rose for the first time in over a year.
The Office for National Statistics said the number claiming unemployment benefit rose by 12,900 last month, well below forecasts for an increase of 20,000.
The number of people without a job on the wider ILO measure of joblessness rose by 30,000 in the three months to September to 2.46 million, the smallest rise since March-May 2008. That left the jobless rate at 7.8%, confounding expectations that it would hit 8%.
The figures will raise hopes that the worst of the recession has passed and that UK unemployment will peak at a lower level than previously feared. The number of people in work actually rose by 6,000 in the three months to September, the first increase since May-July 2008.
Earnings growth remained subdued, however, rising at an annual rate of just 1.2% including bonuses in the three months to September.
Separate figures from the Council of Mortgage Lenders showed that the number of mortgages advanced for house purchase rose by 2% during September after dipping during August.