|The UK Consumer Prices Index (CPI) grew by just 0.5% in December triggering an explanatory letter from the Bank of England Governor to the Chancellor – a scenario we first signposted in mid-October. This is the lowest level of growth since May 2000 and was driven by falling transport costs and heavy discounting by food retailers. There are structural reasons to believe that achieving 2% inflation has become harder for UK policymakers given the changing consumption patterns of an ageing population and deeper integration in international capital markets. This underpins our expectation that when UK interest rates rise – and we now estimate this will begin in Q1 2016 – they will achieve a cyclical peak at between 2.0% to 2.5%. In the short term however we expect the rate of inflation to fall further during Q1 2015 and remain below 1% until the start of Q3 2015.