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sams465

What CPU should I go for?

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The i5-6400 should be fine if you're building a mid range gaming system. The only differences is clock speed so yes the i5 6400 is slower than the i5 6500. If you just need to cut costs, but want to keep performance, that power supply can be cheaper if you get a bronze or a non-modular unit. Also, you might want to pick up two sticks of RAM rather than one. Otherwise you will lose dual channel memory speeds. 

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Looking at this build, I see a number of ways to cut costs and optimize performance without having to downgrade the CPU, which I wouldn't recommend doing.

PCPartPicker part list / Price breakdown by merchant

CPU: Intel Core i5-7500 3.4GHz Quad-Core Processor  (£190.99 @ CCL Computers) 
Motherboard: MSI H110M Gaming Micro ATX LGA1151 Motherboard  (£59.69 @ CCL Computers) 
Memory: PNY Anarchy 8GB (2 x 4GB) DDR4-2400 Memory  (£39.55 @ Amazon UK) 
Storage: Western Digital Caviar Blue 1TB 3.5" 7200RPM Internal Hard Drive  (£43.95 @ Amazon UK) 
Video Card: XFX Radeon RX 470 4GB Triple X Video Card  (£170.99 @ Amazon UK) 
Case: Aerocool Aero-800 ATX Mid Tower Case  (£52.10 @ Kustom PCs) 
Power Supply: XFX XT 500W 80+ Bronze Certified ATX Power Supply  (£45.94 @ CCL Computers) 
Total: £603.21
Prices include shipping, taxes, and discounts when available
Generated by PCPartPicker 2017-01-21 14:26 GMT+0000

Firstly, I changed the CPU for the latest Kaby Lake version as the price difference is neglible, but you get a slightly higher clock speed and all the other advantages Kaby Lake entails, such as 4K Netflix. Then, I swapped out the RAM for an equally priced dual-channel kit which will ensure best memory performance in various applications and games. I reduced the cost of the motherboard by slightly downgrading to an H110 chipset, yes, it is microATX, but for a budget gaming-focused build this will not really change anything.

Moving on, I decided to change out the GPU from the 4GB RX 480 to the 4GB RX 470, my justification is that performance difference between the two is generally less than 10% at 1080p, which I assume is the resolution you're targeting. Generally speaking, you should typically either go for a 4GB RX 470 for 1080p or a full step up to the 8GB RX 480 for 1440p. Either way, this adds up to a roughly £40 savings by itself. Finally, I changed out the PSU for a bronze-rated, non-modular unit. Yes, this will be a bit less efficient but at a price difference of roughly £30 I believe it is a worthy tradeoff. 

All of these changes together bring the total price down to just over £600 without sacrificing much in gaming performance. 

I apologize for the late response. I should really be more active in the forums. 

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