Even though the official figure understates the true level of joblessness, the undeniable evidence that the labour market is getting tighter alarmed the financial markets. They reckon that base rates will have to rise again, although opinions were divided about whether this would be before or after the election.
Minutes of the 23 September meeting between Kenneth Clarke, Chancellor of the Exchequer, and Eddie George, Governor of the Bank of England, confirmed yesterday that the Bank had started to press for higher rates a month before the Chancellor agreed.
A further rise in interest rates, following the quarter- point rise earlier this month, would trigger a round of mortgage increases. Nationwide on Tuesday became the first big lender to increase its standard mortgage rate.
The gilts market weakened yesterday, weighed down by yesterday's evidence of the fizz in the economy and the fear that today's inflation figures will show the target measure climbing above 3 per cent. Sterling gained more than 2 pfennigs to end at DM2.4921.
The fall in the unemployment count in October was much bigger than expected. The Office for National Statistics said about 10,000-15,000 of the drop was due to the introduction of the Job Seekers' Allowance and will be reversed.
But even allowing for that distortion, there was a broad-based fall in the number of claimants that exceeded the recent trend. The total, not adjusted for seasonal variations, crept below 2 million to 1,977,000.
The number of claimants was lower in all regions and for men and women. It has declined across all age groups, and long-term unemployment also fell.
Other figures for vacancies, manufacturing employment and earnings painted the same picture of a buoyant jobs market. The number of vacancies advertised in JobCentres last month, although exaggerated by a new computer system, returned to the highest level since May 1988.
An extra 13,000 jobs were created in manufacturing industry in September, taking the level of employment in the sector to its highest for nearly four years.
The underlying increase in average earnings remained at 4 per cent in the year to September. However, actual earnings growth climbed to 4.6 per cent, the fastest rate of increase since the end of 1992.
Although the official claimant count underestimates the number unemployed - by around 150,000 compared to the total on the international definition of unemployment - the general picture of a rapid fall in unemployment and a slower climb in employment has become clear.
"The economy is steaming," said Paul Mortimer-Lee, chief economist at investment bank Paribas, predicting a base rate increase in January.
Geoffrey Dicks at NatWest Markets agreed but said: "There's an election coming up. The Chancellor will hold off."
At the 23 September monetary meeting Mr George argued for a quarter-point increase and said a delay might make it necessary to tighten policy more sharply. The Bank's Inflation Report last week warned that another move would be needed at some stage.
A few City economists remain unconvinced of the need for higher rates but think we might get them, anyway. "Inflation is benign and growth is around trend. I would be surprised if the Chancellor were to raise rates again, but with the Bank piling on the pressure he might," said Simon Briscoe at Nikko.Reuse content