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Inflation fall hits pound and boosts house builders

Inflation fall hits pound and boosts house builders

House builders rallied after strong results from Persimmon and low inflation figures added further weight to arguments to delay interest rate rises.

Persimmon (PSN) perked up 5p to £13.40 after a choppy morning's trading for the stock, which saw it reach £13.68 after posting a 57% rise in pre-tax profit. The solid results come a day after Bovis Homes (BVS) announced a 150% rise in half-year profits. Rival Barratt Developments (BDEV) rose 1% to 368.5p amid enthusiasm for the sector.

House builders received a further boost from news that inflation fell by more than expected last month. The UK consumer prices index slipped to 1.6% from 1.9% in June, below a consensus forecast of 1.8%. House builders have enjoyed strong performance in an environment of historically low interest rates. The low inflation rate suggest the cost of borrowing will remain frozen at 0.5% at least until the end of the year. The news sent the pound tumbling to $1.6642.

'On the face of it this supports an "on hold" stance from the Bank of England,' said James Knightley, economist at ING. 'The combination of sterling strength (making goods cheaper), along with weak wage growth and lower energy prices, which are limiting business cost growth, means inflation looks to remain contained for now.

'This further eases the pressure on the Bank of England to consider near-term interest rate rises and pushes the balance more in favour of a delay to rate hikes versus our current November view for the first policy tightening move.'

The FTSE 100 added 33 points, or 0.5%, to 6,774. BHP Billiton (BLT) was the biggest faller, dropping 4% to £19.83 as it revealed plans to spin off areas of its business. Investors were disappointed by the lack of a share buyback, as they had hoped to receive around $5 billion (£3 billion).

BHP Billiton will focus on iron ore, copper, coal and petroleum in the new simplified structure. The spin-off company will house BHP Billiton's aluminium, manganese and nickel assets. South African energy coal, Australian metallurgical coal, silver, lead and zinc assets will also be included in the new venture.

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