Inflation in the UK has returned to the target rate of 2% set by the Bank of England, marking the first time in nearly three years, according to official figures released on Wednesday. The news has been seized upon by the ruling Conservative Party as evidence that their economic plan is working, just ahead of the July 4 election.

The Office for National Statistics reported that the consumer prices index showed inflation dropped to 2% in the year leading up to May, down from 2.3% the previous month. The decline was primarily driven by lower food prices. However, it's important to note that this does not indicate falling prices, but rather a slower rate of increase compared to the past few years.

Conservative Prime Minister Rishi Sunak hailed this development as "great news," claiming that the economy has turned a corner. However, Rachel Reeves from the main opposition Labour Party argued that working people are worse off, highlighting higher mortgage rates and taxes at a 70-year high.

Despite the decline in inflation, economists believe that the Bank of England is unlikely to reduce its main interest rate of 5.25% when it meets on Thursday. Concerns remain over rising prices in the services sector and the pace of wage increases, which could lead to an inflation rebound if interest rates are cut prematurely.

The fall in inflation follows a period of almost three years of above-target inflation. The last time inflation stood at 2% was in July 2021 before prices escalated due to supply chain disruptions during the pandemic and Russia's invasion of Ukraine, causing energy costs to soar.

Prime Minister Sunak had gambled on the stable economic environment benefiting the Conservatives, prompting him to call an earlier election than expected. However, opinion polls have shown little movement in the past four weeks, with Labour retaining a clear lead. The opposition party is widely expected to return to power for the first time since 2010.

Looking ahead, Labour leader Keir Starmer has emphasized that boosting economic growth will be the top priority for his government if he becomes prime minister on July 5. In a setback for Sunak, billionaire John Caudwell, a prominent Conservative Party donor, announced his support for Labour for the first time, stating his belief that Starmer is committed to wealth creation.

The consensus in financial markets is that interest rates may be cut in August or September as concerns over underlying price pressures and potential policy changes loom in the run-up to the general election.

In conclusion, the return of inflation to the Bank of England's target rate of 2% is being touted as a success by the Conservative Party, seen as evidence that their economic plan is working. However, Labour continues to lead in the polls, and the road to the election remains uncertain. Financial markets anticipate potential interest rate cuts in the coming months to address ongoing challenges in the UK economy.