British retail inflation eased to its slowest pace this year in October as retailers stepped up the price battle to lure cash-strapped consumers, a survey showed, in the clearest sign so far that inflation may have peaked as the Bank of England predicts.

Shop price inflation fell to 2.1 percent year-on-year in October from 2.7 percent the month before, the British Retail Consortium said Wednesday.

It's clear inflation is not coming from shops. As the competitive battle intensifies, retailers are holding down shop prices despite their own costs, said Stephen Robertson, director general at the BRC.

The news that retail inflation is falling will cheer Bank of England policymakers who restarted a quantitative easing program last month with an additional 75 billion pound ($120 billion) injection of cash despite inflation running at more than double the bank's target level.

The central bankers have said that inflation will drop sharply next year as one-off effects such as rises in value-added taxes and high oil prices drop out of the equation and the economic weakness dampens wage and price increases.

The official measure of consumer price inflation was 5.2 percent in September, and at the height of the financial crisis inflation dropped from the same level in September 2008 to just 1.1 percent in September 2009.

Tesco , Britain's biggest retailer, launched a price-cutting campaign last month to reverse a gradual drift lower in its market share, triggering responses from top rivals Asda , J Sainsbury and Wm Morrison .

Food prices were 4.2 percent higher in October than a year earlier, compared to 5.0 percent in September, the BRC said.

They fell 0.5 percent on the month before as supermarkets cut food prices to gain customer loyalty in the run-up to the key Christmas trading period.

Christmas shopping is now underway and shoppers are having to make their spending money go further this year. So it's encouraging to see shop price inflation falling this month, said Mike Watkins, senior manager at Nielsen.

Consumer demand has weakened in the face of sub-inflation wage increases, rising unemployment and fears about the perilous state of the economy.

Business surveys have also indicated that services firms have to cut fees in order to keep business going.

British retail sales softened in October as careful shoppers kept their purses shut and cut back on non-food items, the BRC said Tuesday.