Inflation has hit the Bank of England’s target for the first time in almost three years. Prices rose at 2 per cent in the year to May, down from 2.3 per cent the month before, official figures show.

The economy is a key talking point in the run-up to the general election on 4 July, with all of the main parties battling over how they would keep the cost of living under control. The Conservatives said their “difficult decisions” were paying off, but Labour said pressures on family finances were “still acute”.

The drop in May’s inflation figure was driven by a slight fall in prices for food and soft drinks, and slower price rises for recreation and culture and furniture and household goods. However, petrol prices are rising again, and food prices are still 25 per cent higher than at the beginning of 2022.

The inflation figure comes ahead of the Bank of England’s latest decision on UK interest rates this Thursday. Markets now cut bets

The bank is expected to hold the rate at 5.25 per cent – a 16-year high – for the seventh meeting in a row.

Markets have now also cut bets that the Bank of England will slash rates at its next opportunity in August. That is because price rises in the services sector remain high at 5.7 per cent in the 12 months to May. Inflation has fallen steadily since October 2022, when Russia’s invasion of Ukraine caused it to peak at 11.1 per cent as food and fuel prices soared. But millions of households are still struggling with the cost of living.

Even though inflation is falling, it does not mean the prices of goods and services overall are coming down, just that they are rising at a slower pace. 

The Bank of England has also put up interest rates to try to dampen down consumer demand, driving up mortgage rates and rents.