According to the Central Statistics Office, the rate fell to 12.5% in October, down from 12.6% in September. The last monthly fall was in December 2007 when just 4.7% of the workforce was jobless.

The number of people claiming unemployment benefits fell in October by more than 7,400, to 412,407.

Despite many leaping on the fall in jobless figures as a chink of light for the Republic's beleaguered economy, economists have warned that some one-off factors may have led to a temporary drop and that the rate may head towards 15% next year.

Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin, said: "On the surface these numbers suggest that the jobless rate has peaked... they at least buy the government some time."

But the reopening of Ireland's universities in September, as well as rising emigration and increased government job-training programmes, could be skewing the latest figures, he suggested.

Meanwhile, tentative signs of an increase in consumer confidence emerged in the Republic yesterday. The KBC Ireland/ESRI Consumer Sentiment Index improved to 54.2 last month, the highest since April 2008. An all-time low of 39.6 was reached in July 2008.

Yesterday's positive signals came as credit rating firm Fitch cut the Republic's credit rating, citing the severity of its economic downturn.

The move, the second in just over six months, reduced the Irish Republic's sovereign rating to 'AA-' from 'AA+', missing out the 'AA' rating. But Fitch put the outlook for the rating as 'stable'.

The latest downgrade puts Ireland's rating at the same level as Italy and Cyprus and partly reflects the severity of the economic adjustment under way

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