The Office for National Statistics said the jobless rate declined to its lowest level since the three months to the end of July 2025.
Analysts had expected unemployment to remain at 4.9 per cent in the three months to July 2026.
The figures come as Prime Minister Andy Burnham prepares for difficult economic decisions ahead of the October 28 budget presentation.
Despite the improvement in the overall unemployment rate, youth unemployment remains a major concern for the government, which has prioritised tackling the cost-of-living crisis.
Burnham warned on Sunday that Britain faced an “economic catastrophe and moral failure”, with about one million people aged between 16 and 24 not in employment, education or training.
“We either invest in the success of our young people or pay for failure through the benefits system,” he wrote in The Times.
A government-commissioned review of youth unemployment, led by former Labour cabinet minister Alan Milburn, is expected to publish proposed solutions next month.
Burnham has also promised young people a “clear guarantee of support”, alongside significant changes to the welfare system.
On Monday, the government announced plans to recruit thousands more apprentices under the age of 25 in sectors including accounting, law and consulting.
Reacting to the latest labour market figures, Richard Carter, head of fixed-interest research at Quilter Cheviot, said signs of stabilisation were encouraging but warned that the recovery remained fragile.
“Signs that the labour market may be stabilising are welcome, but the recovery remains fragile, and the government will not want to do anything that further discourages businesses from hiring,” he said.
Meanwhile, rising inflation and government bond yields at multi-decade highs have added to the economic pressures facing the government.
Finance Minister John Healey, who is scheduled to present the budget, has pledged to maintain strict fiscal discipline.