PARIS, Nov 26: The British economy has outperformed most other leading economies and is set for 2.3-per cent growth this year, an OECD report said on Monday, signalling that sterling is well placed to participate in the euro zone.

The report skirted the issue of Britain and the euro in diplomatic terms, but noted that in many ways the British economy is closer to the core of the euro zone than some euro-zone members.

Sterling moves more closely in line with the euro than the dollar, the report said while taking a hypothesis of a 10-per cent depreciation of sterling against the euro in the medium term and a rise against the dollar, implying thereby that the dollar might be set for a heavy fall.

The report highlighted urgent need for investment, including state investment, in public services such as transportation and education, and that two thirds of growth in the last five years has come from transportation, communications and financial services.

Employment remains high and inflation low, while services take over from manufacturing as engines of growth, expected to reach 2.3 per cent this year, the Organization for Economic Cooperation and Development said.

Strength of the pound against the euro, however, has increased the trade deficit.

“Overall, the United Kingdom’s macroeconomic performance has been robust,” it resumed, while noting that weakened activity since late 2000 would suffer from the September 11 terrorist attacks against the United States.

Although British growth has slowed since the summer of 2000, it “held up better than in the other major OECD economies,” said the report, singling out the “dynamism of transport and communications services, as well as business services and finance”.

Gross domestic product (GDP) is expected to grow by 2.3 per cent in 2001, by 1.7 per cent in 2002, and by 2.5 per cent in 2003, the survey found.

For the OECD as a whole, the economic growth forecast is for 1.0, 1.0 and 3.2 per cent over the same period.

Unemployment has fallen more than expected, and domestic shocks such as an outbreak of foot-and-mouth disease and rail disruptions, “do not appear to have had much adverse effect on overall economic activity”.

Britain’s decrepit transport system is the worst in Europe, the government has said in a separate report to be published in full on Monday.

Britain has the most congested roads, the longest commuting times and among the highest bus and rail fares around, a study by the Commission for Integrated Transport found.

The OECD survey also saw “weakening activity in the internationally-exposed industries, especially in parts of manufacturing”.

Household consumption, however, was “bolstered in the first half of 2001 by falling interest rates, rapidly rising house prices and vigorous after-tax income growth”.

Manufacturing has grown by only 0.7 per cent annually from 1995-2000, while the services sector accounted for 63 percent of GDP growth over the same period.—AFP