Shoppers have been hit hard by the damage that has already been done by food price inflation, says James Moore, but the City was cheered by rosier news which could lead to better mortgage deals for homeowners

The cheers that followed UK inflation pulling the first surprise for several months can be heard up and down the country. To the delight of many, it has held steady on the downside at 3.8 per cent. The Reuters consensus forecast of economists predicted a rise to 4 per cent, as did the Bank of England.

Prices are still rising at an uncomfortable rate and this has been causing real pain. Too many people will face the invidious choice of heating or eating this winter. So while it's good news that inflation hasn't gone any higher, and may even have peaked, the damage has been done. It's still being done.

Food price inflation finally eased in September, for the first time since March, according to the official data. The food and non-alcoholic drinks category that feeds into the Consumer Prices Index (CPI) eased to 4.5 per cent for the year to September, down from 5.1 per cent in the year to August.

But that good news only goes so far. Inflation's percentages are cumulative.

Let's say your weekly shopping basket came to £100 in September 2023. By September 2024, when food price inflation was more moderate, it would have reached £101.90. A 4.5 per cent rise on that gets us to £106.49. Now let's say that prices rise by only 2 per cent in the year to September 2026, which would be a fine result. Your basket would be at £108.62, 8.6 per cent higher than in 2023. That's an extra £448.24 a year. About the price of a new flatscreen TV.

The biggest winners, when the dust has settled, may ultimately be people looking for mortgages and Britain's beleaguered Chancellor, Rachel Reeves. Taxpayers too? Maybe. I wouldn't get too excited yet. But maybe.

If inflation really has peaked then we can start feeling more optimistic about interest rate cuts.

There is a divergence of views among the rate-setters on the Bank's Monetary Policy Committee (MPC). On the hawkish side, we have nervous Huw Pill, the Bank's chief economist. Pill has been out and about arguing for caution. On the other side, super-chilled Swati Dhingra thinks the inflationary pressures in the UK are temporary.

The lastest result is a win for her and the other more doveish members of the MPC. A few more good indicators could see another rate cut this year, perhaps in December. Some people are even talking about next month, but I think they're getting over-excited.

Dhingra is not alone. Bond giant Pimco, which as $2tn (£1.5tn) under management, feels the same way. Andrew Balls, its chief investment officer for fixed income, recently told the FT he did not hold with the view that the UK is doomed to higher inflation than the rest of the developed world. The money manager has bet big on faster rate cuts as a result.

If that view is taking hold in the City, it will be very good news for mortgage holders because what they pay for fixed rate deals is governed by the interest rate swaps market in the financial centre. Markets tend to move a lot quicker than the MPC and there was an immediate reaction to the latest inflation release on the currency and bond markets (Pimco's stomping ground), with the pound falling against the dollar and interest rate yields on UK debt doing the same thing.

This is good news for most UK mortgage holders because lenders may feel they can improve their fixed rate deals. It is also good news for Reeves, who could benefit from lower debt serving costs (a real problem as things stand).

Of course, a bad result in a month's time could easily spoil the early Christmas party. But doesn't it feel good to be able to feel a little optimism for a change?

Is the worst finally over for inflation?