Council Opinion of 12 February 2001 on the updated convergence programme for the United Kingdom, 1999/2000 to 2005/2006
Date: 2001-02-12
Institutions: Council of the European Union
Subjects: United Kingdom, coordination of EMU policies, economic convergence

C 77/2

EN

Official Journal of the European Communities

9.3.2001

COUNCIL OPINION

of 12 February 2001

on the updated convergence programme for the United Kingdom, 1999/2000 to 2005/2006

(2001/C 77/02)

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 coordination of economic
policies (1), and in particular Article 9(3) thereof,

Having regard to the recommendation of the Commission,

After consulting the Economic and Financial Committee,

HAS DELIVERED THIS OPINION:

On 12 February 2001 the Council examined the updated
Convergence programme of
the United Kingdom which
covers the period 1999/2000 to 2005/2006. The programme
envisages a government surplus of 1,1 % of GDP in 2000/2001,
a smaller surplus in 2001/2002, balance in 2002/2003 and
deficits around 1 % of GDP in the three following years to
2005/2006. The Council considers it appropriate that
the
programme stresses the securing of macroeconomic stability
supported by sound monetary
and
continued structural reform.

and fiscal policies

The programme is built upon a macro-economic framework
showing a return of GDP growth from 3 % in 2000 to close to
trend (cid:151) put at 2,5 % (cid:151) thereafter, which the Council
considers to be realistic if cautious. Moreover, the projections
in the programme for the public finances are, for reasons of
caution, based on a lower assumption for trend growth (cid:151)
namely 2,25 %.

rates,

to inflation and interest

With respect
the United
Kingdom continues to fulfil the convergence criterion with
some margin. The Council notes
the monetary
framework of
inflation targeting, with operational responsi-
bility for interest rate changes given to the Bank of England,
has been an important condition for securing low inflation
expectations. The Council notes that under the current policy
framework, the programme projects the UK inflation target to
be achieved over the programme period.

that

this policy framework has delivered a stable exchange rate.
Therefore the Council recommends that the United Kingdom
continue with the stability-oriented policies with a view to
securing exchange rate stability which,
in turn, should help
reinforce a stable economic environment.

in

are

general

finances

government

2000/2001,
The
2001/2002 and 2002/2003 close to balance in underlying
terms thus fulfilling the requirements of
the stability and
growth pact. However,
the Council notes that a persistent
deficit of 1 % of GDP emerges in the latter years of the plan;
larger than the deficits of around 0,5 % of GDP in the two final
years of the previous update. This would not be in line with
the prescription of (cid:145)close to balance or surplus(cid:146) contained in
the stability and growth pact. The Council acknowledges that
this emerges in the projections as a result of the use of a very
cautious trend growth assumption of 2,25 % per annum and as
a consequence of increased government investment as a share
of GDP within the expenditure totals. Should trend growth be
higher, as expected, compliance with the BEPG will require
more ambitious budgetary outcomes. While the specific recom-
mendation to the UK in the BEPG advised the UK to pursue a
policy of substantially raising the ratio of government fixed
investment to GDP, it also recommended to do so within the
context of firm control of government expenditure, thereby
finances
keeping the underlying position of government
broadly unchanged. Therefore,
the Council encourages the
government
to be alive to any deterioration in the public
finances that would take them away from the terms of the
if necessary, to take remedial
stability and growth pact and,
action.

The Council notes that the government gross debt ratio in the
United Kingdom remains below 60 % of GDP and is expected
to 40 % in 2000/2001. The Council welcomes the
to fall
envisaged further reduction of the gross debt ratio to 35 %
of GDP by 2004/2005.

It notes, with approval,

The Council welcomes the structural reforms included in the
programme.
the progress on
economic reforms should help to raise productivity levels to
those of competitors and secure further improvements in the
labour market.

that

The United Kingdom has fulfilled the convergence criterion on
the long-term interest rate for some time. This helps confirm
the credibility given to the UK’s stability oriented framework
for macroeconomic policy. It notes that while there are signs of
reduced exchange rate volatility, it cannot be concluded that

that

The Council notes
the programme provides both
long-term projections of public finances and a description of
policies that could be addressed to minimise the impact of
the sustainable position which is
ageing, and welcomes
projected.

(1) OJ L 209, 2.8.1997, p. 1.