Inflation has returned to the 2% target for the first time in almost three years in what comes at a critical time, just weeks before the nation heads to the polls.

The Office for National Statistics (ONS) said Consumer Prices Index (CPI) inflation fell to 2% in May, down from 2.3% in April.

It follows nearly three years of above-target inflation, with CPI last recorded at 2% in July 2021, before shooting higher amid the cost-of-living crisis.

The data will be watched closely ahead of the Bank of England’s next interest rate decision on Thursday, but policymakers are widely expected to hold fire on any cuts until after the General Election on July 4.

It comes less than three weeks before polling day and as the political parties home in on economic pledges in their manifestos.

The Confederation of British Industry (CBI) said the stage was now set for the Bank of England to cautiously cut interest rates.

CBI principal economist Martin Sartorius said: “Another fall in inflation in May will come as welcome news to households as we move towards a more benign inflationary environment.

“However, many will still be feeling the pinch due to the level of prices being far higher than in previous years, particularly for food and energy bills.

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“Today’s data sets the stage for the Monetary Policy Committee to cut interest rates in August, in line with our latest forecast’s expectations.

“However, rate-setters will still need to weigh the fall in headline inflation against signs that domestic price pressures, such as elevated pay growth, are proving slower to come down.

“This means that they are likely to move cautiously beyond August to avoid putting further upward pressure on inflation, especially as the growth outlook improves at home and geopolitical tensions remain heightened.”