COUNCIL OPINION of 8 February 1999 on the convergence programme of the United Kingdom, 1997-1998 to 2003-2004
Date: 1999-02-08
Institutions: Council of the European Union
Subjects: United Kingdom, economic convergence, economic policy, inflation

11.3.1999

EN

Official  Journal  of  the  European  Communities

C  68/5

COUNCIL  OPINION

of  8  February  1999

on  the  convergence  programme  of  the  United  Kingdom,  1997(cid:220)1998  to  2003(cid:220)2004

(1999/C  68/04)

THE  COUNCIL  OF  THE  EUROPEAN  UNION,

Having  regard  to  the  Treaty  establishing  the  European
Community,

Having  regard  to  Council  Regulation  (EC)  No  1466/97
of  7  July  1997  on  the  strengthening  of  the  surveillance  of
budgetary  positions  and  the  surveillance  and  coordi(cid:220)
nation  of  economic  policies(cid:216)(˛),  and  in  particular  Article
9(1)  and  (2)  thereof,

Having 
Commission,

regard 

to 

the 

recommendation  of 

the

After  consulting  the  Economic  and  Financial  Committee,

HAS  DELIVERED  THIS  OPINION:

On  8  February  1999  the  Council  examined  the  United
Kingdom’s  Convergence  programme  which  covers  the
period  1997(cid:220)1998 
to  2003(cid:220)2004.  The  programme
envisages  a  government  surplus  of  0,8(cid:216)%  of  GDP  in
1998(cid:220)1999  and  public  finances  close  to  balance  in  the
remaining  years  of 
the  programme.  The  Council
considers  it  appropriate  that  the  programme  emphasises
the  securing  of  macro(cid:220)economic  stability  supported  by
budgetary  consolidation  and  continued  structural  reform.
Moreover,  the  Council  considers  that  the  programme  is
fully  in  line  with  the  Broad  Economic  Policy  Guidelines.

The  programme  is  built  upon  a  macroeconomic  forecast
showing  a  deceleration  in  the  strong  domestic  demand
led  growth  of  recent  years  towards  real  GDP  growth  of
to  recover
to  1(cid:154)(cid:216)% 
1 
subsequently 
in  2001  and  remain
to  3(cid:155)(cid:216)% 
around  trend  thereafter.  The  Council  acknowledges  that
the  growth  scenario  appears  realistic  and  notes  that
growth  at  the  top  end  of  the  forecast  range  is  based,
inter  alia,  on  the  success  of  the  government’s  labour

in  1999  but 
to  2(cid:156) 

for  growth 

(˛)(cid:217)OJ  L  209,  2.8.1997,  p.  1.

rate  of  unemployment.  Moreover, 

market  policies  and  the  delivery  of  a  reduction  in  the
the
sustainable 
projections  in  the  programme  for  the  public  finances  are,
for  reasons  of  caution,  based  on  the  lower  end  of  the
growth  range.  The  Council  notes 
the  government’s
commitment  to  a  framework  in  which  monetary  policy  is
applied  promptly,  with  the  support  of  budgetary  policy,
with  a  view  to  achieving  a  less  volatile  growth  profile.

With  respect  to  inflation,  the  United  Kingdom  continues
to  fulfil  the  convergence  criterion  with  some  margin.  The
Council  notes  that  the  monetary  framework  of  inflation
targeting,  with  operational  responsibility  for  interest  rate
changes  given  to  the  Bank  of  England,  has  been  an
important  condition  for  securing  low  inflation  expec(cid:220)
tations.  The  outlook  is  for  inflation  to  remain  low  with
downward  pressure  on  domestically  generated  inflation
in  the  near  term.  The  Council  urges  that  the  United
the
Kingdom’s 
programme  period;  it  is  encouraged  that  such  an  outturn
is  likely  to  be  consistent  with  the  ECB’s  definition  of
price  stability.

target  be  achieved  over 

inflation 

stability  oriented 
it 

The  United  Kingdom  has  fulfilled 
the  convergence
criterion  on  the  long(cid:220)term  interest  rate  for  some  time.
This  emphasises  the  credibility  given  by  markets  to  the
for
framework 
United  Kingdom’s 
macroeconomic  policy.  However, 
is  too  soon  to
conclude  that  this  policy  framework  has,  as  yet,  reduced
exchange 
the  Council
recommends  that  the  United  Kingdom  continue  with
these  policies  with  a  view  to  securing  exchange  rate
stability  which,  in  turn,  should  help  re(cid:220)enforce  a  stable
economic  environment.

volatility.  Therefore 

rate 

The  Council  takes  note  of  the  programme’s  budgetary
objectives  and  its  expectation  of  their  achievement  over
the  programme  period  to  2003(cid:220)2004.  It  notes  with
approval  that  the  public  finances  are  projected  to  be
close  to  balance  in  underlying  terms  over  the  programme
period  thus  fulfilling  the  medium  term  requirements  of
the  Stability  and  Growth  Pact.  This  budgetary  objective
is  intended  to  be  achieved  by  announced  tax  policies  that
will  raise  the  ratio  of  receipts  to  GDP  a  little  over  the
programme  period,  while  maintaining  a  ratio  below  that
of 
the
the  European  Union  on  average,  and  by 
adherence  to  the  firm  expenditure  plans  over  the  medium
term.  The  Council  welcomes  the  raising  of  government
investment  as  a  share  of  GDP  within  the  expenditure
totals.  It  also  notes  that  the  move  to  three(cid:220)year  allo(cid:220)
cations  of  departmental  expenditure  should  help  ensure

C  68/6

EN

Official  Journal  of  the  European  Communities

11.3.1999

that  the  tight  budgetary  position  is  locked  in  over  the
economic  cycle.

The  Council  notes  that  the  Government  gross  debt  ratio
in  the  United  Kingdom  remains  below  60(cid:216)%  of  GDP
and  is  expected  to  fall  below  50(cid:216)%  in  1998(cid:220)1999.  The
Council  welcomes  the  envisaged  further  reduction  of  the
gross  debt  ratio  to  around  40(cid:216)%  of  GDP  by  2003(cid:220)2004.

The  Council  welcomes  the  structural  reforms  included  in
the  programme.  It  notes,  with  approval,  the  programme’s
emphasis  of  these  reforms,  together  with  the  macro(cid:220)
economic  reforms  and  the  reforms  to  the  public  finances.
In  particular  the  labour  market  reforms  should  build  on
earlier  reforms  which  have  secured  an  unemployment
rate  in  the  United  Kingdom  well  below  the  European
Union  average.