Workers are enjoying the strongest rise in real terms regular pay for more than a decade but the number of those without work is rising, according to official figures.
Near-zero inflation means wage growth is having a bigger impact than it has had at any time since August 2002.
But figures from the Office for National Statistics (ONS) show unemployment has risen for a third month in a row - the first time this has happened since 2011.
The surge in pay growth could add to expectations about the time for an interest rate hike nearing, despite inflation currently being zero.
It may encourage those Bank of England officials who argue that underlying inflationary pressures are building.
Total pay rose 2.9% year-on-year in the three months to July, according to the ONS.
Regular pay, excluding bonuses, was also up 2.9%. This was the strongest since February 2009.
Real terms regular pay was also up by 2.9%, the strongest rate since the three months to August 2002, when it climbed by 3%.
But the figures also showed joblessness grew by 10,000 between May and July, to 1.82 million. The unemployment rate was 5.5%.
However the number of people in work also rose, from 42,000, to 31.09 million, in the period. The employment rate - or proportion of people aged 16 to 64 in work - was 73.5%.
Meanwhile the number of people claiming unemployment-related benefit rose by 1,200 to 791,700 last month, though a fall in the claimant count last year was revised to show it was bigger than first thought.
ONS statistician Nick Palmer said: "Although there has been a small rise in the unemployment level, employment is also up on the previous three months, with its headline rate returning to a record high.
"Meanwhile regular pay - not including bonuses - is growing at its fastest rate for over six years."
Chancellor George Osborne wrote on Twitter: "With wages up 2.9% over the year and inflation low, working people have received the fastest real terms rise in over a decade.
"At 73.5%, employment rate at record high. But we still face risks from global economy and those at home who'd undermine our economic security."
The pound rose after the figures, adding a cent to 1.54 US dollars and a cent to 1.37 euro.
The number of unemployed in the three months to July was 198,000 lower than a year before while the number in work was 413,000 greater compared with 2014.
Figures showed 5.36 million were employed in the public sector in June this year, 59,000 fewer than a year before.
Private sector employment stood at 25.74 million in June, 472,000 higher than in the same month in 2014.
The number of people classed as economically inactive fell by 24,000 in the three months to July to 8.99 million, 65,000 down on a year earlier.
This includes those on long-term sick leave or who have given up on looking for work.
The number of UK nationals working in the UK in April to June stood at 27.76 million, up 84,000 compared to the prior year.
But the number of non-UK nationals in work in the country climbed much more sharply over the period, by 257,000, to reach 3.18 million.
It is an increase of 966,000 since 1997, a period which has seen the proportion of non-UK nationals as part of the UK workforce rise from 3.7% to 10.3%, reflecting the admission of new EU member states.
Employment Minister Priti Patel said: "As part of our one nation government, we want everyone to succeed and achieve their full potential, and through our reforms we are doing just that.
"With a record number of people working in the private sector and wages rising, it is clear that the remarkable jobs success that we have seen under this government is continuing."
The pound rose by a cent against the US dollar and the euro.
Chris Williamson, chief economist at Markit, said: "The long-awaited upturn in pay, which has been the missing element of the UK's economic recovery, looks to be finally upon us, reviving the prospect of a rate hike by the end of the year.
"Pay growth is accelerating across the board. Despite current low rates of inflation, companies are having to offer workers higher salaries to either attract new staff or retain existing employees as the labour market tightens.
"This is clearly great news for households. With inflation at zero, households are clearly benefitting from a steep upswing in real pay, which should help boost the economy in coming months.
"However, there are indications that the labour market has started to cool, at least in terms of hiring.
"Policymakers will therefore need to judge whether the recent upturn in pay merits higher interest rates, or whether the labour market is already softening again, which augurs for rate hikes to be postponed."
Howard Archer, chief UK and European economist at IHS Global Insight, said: "The labour market has clearly lost momentum compared to earlier this year.
"A positive interpretation of this is that UK productivity is now seeing genuine improvement - with earnings growth stronger, UK companies may well now be really stepping up their efforts to lift productivity by getting more out of their existing workers."
David Kern, chief economist at the British Chambers of Commerce, said: "Overall, the figures confirm our assessment that the UK recovery is progressing at a satisfactory pace, but the rise in unemployment also indicates that our recovery is still fragile and significant risks will persist in view of the uncertain international situation.
"Though the further increase in average earnings may be of concern to the MPC (Monetary Policy Committee), the rate of increase remains below 3% and in the short term does not pose a threat to the Bank of England's inflation target.
"We restate our view that the MPC should not consider increases in interest rates until well into 2016."
Michael Martins, economic analyst at the Institute of Directors, said: "Today's figures are further proof that Britain's businesses continue to power the recovery and are sharing the rewards with their employees.
"In the downturn, businesses did all they could to keep people in work, taking the difficult decision to cut hours or freeze pay. Now, real pay growth has become entrenched and the rate of unemployment has stabilised."