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UK rate hike delayed until 2016

The Bank of England has pushed back the likely date of an interest-rate hike due to weak inflation.

The likely date of the UK's first interest-rate rise since 2007 was put back this week. Minutes from the latest meeting of the Monetary Policy Committee (MPC), which sets interest rates for the Bank of England, showed that two members who had been voting for a hike now favoured no change, due to weak inflation.

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Meanwhile, the labour market remained robust, with the unemployment rate falling to 5.8% from 6% last month, and the claimant count down by 30,000. Wage growth beat inflation for a third month. The financial sector, which accounts for a tenth of GDP, saw its strongest activity in 20 years, according to the Confederation of British Industry.

What the commentators said

In turn, that is making it wary of raising interest rates in case that saps momentum and contributes to the downward trend in prices.

This is a time of "considerable uncertainty for Western economies", said Deutsche Bank, and central banks will use any sign of weaker data, including inflation, to keep rates lower for longer. Don't expect the Bank to move until May 2016.

Yet fears of deflationary stagnation appear unfounded, said Capital Economics. Strip out volatile energy and food prices, and core inflation is well over 1%. Demand looks solid. "Rising earnings growth means that the consumer will drive the recovery... this year," said Scott Corfe of the Centre for Economics and Business Research.

Falling oil prices should also boost consumption, while a survey of household finances has just revealed the highest level of confidence for six years.

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