Pound falls on weak inflation figures

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(Close): A sharper-than-expected fall in the UK inflation rate sent the pound tumbling as analysts pushed back their estimates of when the Bank of England might increase interest rates.

The UK inflation rate fell to 1.2% last month, from 1.5% in August.

With the rate now well below the Bank of England's 2% target, analysts now think there is virtually no chance of a rate rise before the end of the year.

The pound was down by more than 1.5 cents against the dollar at $1.5928.

Sterling had been trading higher against the euro before the inflation figures were released, but it then fell back to stand 0.26% lower at €1.2583.

"I think this is the final nail in the coffin for expectations of a November rate hike, although those had dwindled of late, and puts pressure on our estimates of a February increase in borrowing costs," said Jeremy Cook, chief economist at World First.

On the stock market, the FTSE 100 closed up 26.44 points at 6,392.68.

British Airways owner IAG closed up 4.8%, closely followed by chemicals company Johnson Matthey, up 4.4%.

Bellway rose 5.5% after the housebuilder reported a big jump in full-year profits, which rose to £245.9m from £140.9m a year earlier.

On the downside, shares in Burberry dropped 3.7%, after the fashion house reported a 7% rise in first-half revenues but said it was facing a "difficult external environment".

There was more bad news in the luxury sector from handbag maker Mulberry after it issued a profit warning.

Mulberry shares dived 20% at first before recovering slightly to end the day down 10.1% after it said full-year profits would be "significantly" below expectations.

Shares in oil companies were hit after the price of Brent crude fell below the $87-a-barrel mark. Shares in BP fell 1.2%.

Shares in recruitment firm Michael Page International fell 7.6% after it said slowing growth in fees in Europe and Asia meant full-year operating profits would be lower than expected.