The number of people not looking for work because they are suffering from a long-term illness has hit a record high, latest official figures show.
The fall in the number looking for work has helped to push the unemployment rate to its lowest for nearly 50 years.
The jobless rate fell to 3.5% in the three months to August, the Office for National Statistics (ONS) said.
The number of job vacancies fell again, although the level still remains high with many firms struggling to recruit.
However, the squeeze on pay remains, with rises in regular wages failing to keep up with the rising cost of living.
ONS head of labour market and household statistics David Freeman said the number of people neither working nor looking for work had continued to rise over the past few months.
The economic inactivity rate increased to 21.7% in the June to August period, the ONS said, with those inactive because they are long-term sick hitting a record high of nearly 2.5 million.
Mr Freeman added: "While the number of job vacancies remains high after its long period of rapid growth, it has now dropped back a little, with a number of employers telling us they've reduced recruitment due to a variety of economic pressures."
The estimated number of vacancies in the three months to September fell by 46,000 to 1,246,000, the largest fall since mid-2020 during the Covid pandemic.
Ruth Gregory at Capital Economics said that while there were "tentative signs that the labour market is cooling from the red-hot conditions seen in recent months, the shortfall in labour supply is keeping it exceptionally tight".
"That will maintain intense pressure on the Bank of England to raise rates aggressively over the coming months," she added.
The ONS data showed that while wages were seeing strong rises, they were still failing to keep up with rising prices.
Regular pay - which excludes bonuses - grew at an annual rate of 5.4% in the June to August period, the ONS said, which is the strongest growth seen outside of the coronavirus pandemic period.
However, inflation - the rate at which prices rise - currently stands at a near 40-year high of 9.9%.
When taking the rise in prices into account, the value of regular pay fell by 2.9% in the three months to August, the ONS said.
Reacting to the figures, the Chancellor, Kwasi Kwarteng, said "the fundamentals of the UK economy remain resilient".
"Our ambitious Growth Plan will drive sustainable long-term growth, meaning higher wages and better living standards for everyone, and we are cutting taxes so people can keep more of what they earn," he added.
Source: BBC
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