UK unemployment has fallen below the 2 million mark for the first time since the global financial system was on the brink of collapse six years ago. In a pre-election boost to the UKgovernment, the number of unemployed people fell to 1.97 million between June and August, the lowest level since late 2008 when the US investment bank Lehman Brothers imploded and Britain was in the early stages of recession.

There were 538,000 fewer unemployed people over the three months compared with the year earlier, which was the largest annual fall in joblessness since records began in 1972 according to the Office for National Statistics.

David Cameron said: “The biggest-ever fall in unemployment in history, taking it below 2m, is great news. Our plan is working, but there’s still much more to do.”

The jobless rate fell to 6% in the three months to August, from 6.2% in the quarter to July. It was the lowest rate since late 2008. The employment rate rose to 73%, a level last seen in spring 2008 and close to the all-time high of 73.2%.

Simon Walker, the director general of the Institute of Directors, said falling unemployment was testament to the “fortitude of British business”.

It was not enough to cheer investors however, with the FTSE 100 closing down 181 points or 2.8% at 6,211 – the biggest one-day fall since June 2013. Weak US data, the looming threat of Ebola and geopolitical tensions contributed to the fall. In New York the Dow Jones index closed down more than 170 points.

Despite the rise in UK employment, pay growth remained sluggish at 0.7% between June and August compared with a year earlier, prolonging the fall in real pay as wage growth continued to lag behind CPI inflation which was 1.5% in August and 1.2% in September. It was, however, a slight improvement on the 0.6% pay growth between May and July. Pay growth excluding bonuses was 0.9%, up from 0.8%.

Frances O’Grady, the TUC general secretary, said workers were worse off by £2,500 a year on average in terms of spending power than they were before the crash. “Pay has fallen off a cliff and shows little sign of recovering any time soon. Ordinary households are not sharing in the recovery and are facing their seventh consecutive year of real wage cuts.”

Jo Swinson, the employment relations minister, said she had asked the Low Pay Commission to explore how to increase national minimum wage without having an adverse impact on jobs.

Economists said the Bank of England would delay raising interest rates – on hold at 0.5% since March 2009 – amid weak wage growth, low inflation and a flagging eurozone economy. Philip Shaw at Investec said the Bank was unlikely to raise rates before August 2015.

Martin Weale, a member of the Bank’s rate-setting monetary policy committee who has voted for a rate rise in recent months, said on Wednesday that his MPC colleagues should ignore the recent dip in inflation when setting interest rate policy, indicating that he will continue to vote for a rise in rates.

Speaking at the University of Hull, the former academic Weale said the tightening labour market could feed through into higher wages and rising prices by the end of 2015.

“The tightening of the labour market means that, instead of waiting to see wage growth pick up, I think it is appropriate to anticipate that wage growth. The margin of spare capacity is shrinking rapidly and all logic suggests that ought to lead to an increase in inflationary pressures over the two to three year horizon which concerns the committee.”

“An increase in Bank Rate of 1⁄4 point would be unlikely to slow that process to a halt immediately but there is a risk that, if the increase were delayed, inflation would be pushed above target or a rather sharper increase in Bank Rate would be needed subsequently.”

Economists said the fall in unemployment masked other signs that the jobs market was weakening. The fall in unemployment was partly explained by the rise in the number of economically inactive people, and the rise in employment of 46,000 between June and August to 30.76 million was the smallest quarterly increase since March-May 2013.