November 6, 2001	Tuesday	Shaba’an 19, 1422

LONDON, Nov 5: The global economic chill is making it more difficult for Britain’s Labour government to decide when to ask voters to take the plunge into the unfamiliar waters of the euro zone.

For with growth wilting across the world, economists say it is a far from ideal time to make the key assessment of whether Britain’s economy is in tune with that of its continental neighbours.

Labour’s biggest obstacle to preparing to join the euro this parliament is timing, said David Brown, of Bear Stearns in London.

Europe is facing the risk of recession and the economic feel-good factor may not reappear until 2004, (so it’s) hardly a great time for Britain to be considering how well the economy has converged with Europe.

With the government in favour in principle of Britain adopting the euro, the Treasury has promised its assessment of whether the five economic tests finance minister Gordon Brown says must be met have in fact been satisfied by mid-2003.

That would allow time for a plebiscite on whether to jettison the pound before the next general election which will probably take place about two years later.

But economists say the fact that Britain’s interest rates are at 4.5 per cent and the euro zone’s at 3.75 per cent, even though British price pressures are tame, is testament in itself to lingering economic differences.

The interest rate differential could even widen in the next couple of years if Britain’s monetary authorities are forced at some point to clamp down on a consumer boom once world economic demand recovers, they warned.

It is quite clear that the UK is on a different cyclical path than many other European economies...this is not the time to link UK economic policy to European policy, said Richard Jeffrey, economist at ING Barings.

The UK has cut interest rates significantly and at some point next year may have to raise them at a time when they will be stable or even falling in Europe, Jeffrey added.

Chancellor of the Exchequer Brown struck a circumspect note on the euro on Sunday.

In a speech to the Confederation of British Industry (CBI) in Birmingham, central England, he said the Treasury’s assessment of the five economic tests would be comprehensive and rigorous.

The media interpreted Brown’s speech as striking a significantly more cautious tone than Prime Minister Tony Blair.

Blair recently said Britain should have the courage to hold a referendum during the current parliament if the economic tests, which range from the impact of currency union on jobs to the future of the City of London, are met.

And speaking to the CBI on Monday, the Prime Minister said one of the reasons British manufacturers are currently suffering was the weakness of the euro.

This is one reason why the euro could be of benefit to manufacturers, he said.

However, some economists said British media were exaggerating the extent to which Brown has changed his stance.—Reuters