The London market failed to sustain its recent rally yesterday after some disappointing economic data dented the hopes raised by Tuesday's inflation numbers.

The minutes of the August meeting of the monetary policy committee showed that the vote in favour of cutting interest rates was six-three, rather than unanimous.

Although some members had argued for a half-point rate cut, rather than the quarter that was agreed, the minutes dampened hopes of further cuts in the short term.

The latest employment data reinforced that impression.

Average earnings growth in the three months to June was 4.8 per cent, compared with 4.6 per cent in May.

And the claimant count of unemployment fell 12,800 in July, more than the markets had been expecting. Both figures pointed to a tightening labour market, increasing the pressure on corporate costs.

"The trend in earnings growth continues to run at a pace that, with productivity similar to its trend of 2 per cent year-on-year growth or even below it, implies fairly strong unit labour cost growth," said Mr Michael Saunders, UK economist at Schroder Salomon Smith Barney.

"With weak global growth, this pick-up in unit labour costs will probably be largely absorbed in a profit squeeze for now."

So the data gave markets a Hobson's choice: they would either lead to higher inflation or slower profits growth.

The FTSE 100 struggled to make progress all day, although at one stage it advanced 25.4 to 5,533.2.

But during the afternoon, blue-chips steadily lost ground especially after an opening gain in the Dow Jones Industrial Average faded away.

By the close, Footsie was down 46.2 at 5,461.6, only five points off the day's low.

The index is still in bear market territory, 21.2 per cent below its all-time peak.

The other indices were mixed. The FTSE 250 rose 3.3 to 6,140.0, the SmallCap advanced 3.1 to 2,731.8 while the Techmark 100 fell 20.49 to 1,524.03.