TESTIMONY from the Bank of England governor which played down talk of an early interest rate rise reversed some of the pound's recent gains.

The FTSE 100 Index was also 13.5 points lower at 6787.1, having ended a four-day winning streak.

The decline meant traders only got a short-lived boost from encouraging manufacturing figures from Japan, China and the US.

Sterling was lower against the dollar, at 1.70, and the euro, at 1.25, after Bank of England governor Mark Carney appeared to talk down the prospect of imminent interest rate rises.

Giving evidence to the Treasury Select Committee, Mr Carney said there seems to be "more spare capacity in the labour market than we previously had thought".

Traders had been betting on the Bank of England becoming the first major central bank to raise interest rates since the financial crisis.

IHS Global Insight chief European economist Howard Archer said Mr Carney wants firms and households to understand that "while interest rates cannot stay down at 0.5 per cent for a whole lot longer, they will not rise nearly as quickly or as far as in past tightening cycles."

The dollar was also boosted by sales of new US homes which rose more-than-expected in May to the highest level in six years.

Oil giant BP featured on the risers board, up 3.9p to 523.9p, while rival Royal Dutch Shell was 4p higher at 2433.5p.

Despite the recent spike in oil prices and this week's strike by air traffic controllers in France, airline stocks were on the front foot after a difficult few days.

EasyJet was the highest riser on the top flight leaderboard up 56p at 1479p and British Airways owner International Airlines Group lifted 6.9p to 386.8p.

In corporate news, Carpetright shares were nearly one per cent lower, despite chairman Lord Harris insisting the retailer was on track for a better year.

Results showed a fall in underlying profits to £4.6m but with a store refresh programme well under way Lord Harris said there was hope for an improved performance.

Shares fell 4.8p to 494.3p.

Barcode-printer maker Domino Printing Sciences was the biggest faller on the FTSE 250 leaderboard after it cautioned that pricing pressure in Asia and other developing markets coupled with increased research and development expenses would weigh on earnings for the next year.

Shares fell nearly 17 per cent or 125.5p to 615p.

Speciality chemicals firm Croda International was another big faller in the FTSE 250 Index after it warned that second quarter profits will be down eight per cent on the previous quarter due to sterling's strength.

Shares fell 218p to 2188p.

The biggest risers on the FTSE 100 were easyJet up 56p to 1479p, Shire up 101p to 4404p, International Airlines Group up 6.9p to 386.8p and British Land up 11p to 687p.

The biggest fallers on the FTSE 100 were Ashstead Group down 27p to 827p, Sports Direct International down 22.5p to 720p, Weir Group down 78p to 2619p and RSA Insurance down 14p to 482.2p.