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UK inflation slows further, interest rate hike seen delayed

UK inflation slows further, interest rate hike seen delayed
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There was a sharp slowdown in UK inflation in September. It dropped to its lowest level in five years.

Consumer prices rose 1.2 percent compared with September last year as the prices of food and motor fuels both fell. Inflation was at 1.5 percent in August.

The news makes it more likely that Britain’s central bank, the Bank of England, will keep interest rates at a record low longer, possibly until the middle of 2015.

Annual consumer price inflation exceeded the Bank’s 2.0 percent target every month from December 2009 until December 2013, eroding Briton’s spending power and reducing living standards.

The Bank’s governor, Mark Carney, had said last month that the central bank may start to raise interest rates next spring if the labour market continues to recover from the financial crisis.

But since then, signs have grown that the eurozone is at risk of falling into a new recession, hurting demand in Britain’s manufacturing sector in particular.

And wage growth remains depressed in Britain, meaning little pressure on prices. ONS data on Wednesday is expected to show that average weekly earnings rose just 0.7 percent in the three months to August compared with same period of last year.

The pound fell to a one-month low against the euro and headed towards its lowest against the dollar since last November in response.

with Reuters