Inflation has hit the UK’s 2% target for the first time in three years, increasing the prospect of an interest rate cut.

The consumer prices index (CPI) rate for the year to May was confirmed by the Office for National Statistics (ONS).

The figure indicates that prices are still rising, but at the slowest pace since July 2021.

The ONS said the drop was largely down to falling food prices, while the cost of motor fuel rose slightly.

Officials added that core inflation, which strips out volatile elements such as food and energy, fell to 3.5% in May, in line with expectations.

However, the largest upward contributions to the annual CPIH inflation rate in May 2024 came from restaurants and hotels at 5.8%, as well as housing and household services.

Prices for recreational and cultural goods and services rose at an annual rate of 4.1% in the year to May, while alcohol and tobacco is running at 7.8%.

The Confederation of British Industry’s principal economist Martin Sartorius said the fall in inflation would be “welcome news to households” although he said many were still feeling the pinch.

He added: “Today’s data sets the stage for the [Bank’s] 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.”