Council Opinion of 12 February 2002 on the updated convergence programme for the United Kingdom, 2000/2001 to 2006/2007
Date: 2002-02-12
Institutions: Council of the European Union
Subjects: United Kingdom, economic stabilisation

26.2.2002

EN

Official Journal of the European Communities

C 51/7

COUNCIL OPINION

of 12 February 2002

on the updated convergence programme for the United Kingdom, 2000/2001 to 2006/2007

(2002/C 51/06)

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 2002 the Council examined the updated
convergence programme of
the United Kingdom which
covers the period 2000/2001 to 2006/2007. The programme
envisages a government deficit of 0,2 % of GDP in 2001/2002,
a deficit of 1,1 % in 2002/2003 rising to 1,3 % of GDP in
2003/2004 before falling to 1 % of GDP in the two final
years of
the programme; 2005/2006 and 2006/2007. The
Council considers it appropriate that the programme stresses
the securing of macroeconomic stability supported by sound
monetary and fiscal policies and continued structural reform.

The programme is built upon a macroeconomic framework
showing GDP growth of 2,25 % in 2001 and the same in
2002, rising to 3 % in 2003 before returning to growth, at
trend, of 2,5 % in 2004. The Council considers the macro-
economic forecasts and the trend growth assumption of
in the
It notes
2,5 % to be
reasons of
programme for
the public finances are,
caution, based on a lower assumption for
trend growth
namely 2,25 %.

the projections

realistic.

for

that

to inflation and interest

the United
rates,
With respect
the convergence criteria with
Kingdom continues to fulfil
the monetary
some margin. The Council notes
inflation targeting, with operational responsi-
framework of
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. The United Kingdom
has fulfilled the convergence criterion on the long-term interest
rate for some time. This helps confirm the credibility given to

(1) OJ L 209, 2.8.1997.

stability oriented framework for macroeconomic
the UK’s
the United Kingdom
policy. The Council recommends that
continue with the stability oriented policies with a view to
securing exchange rate stability which,
in turn, should help
reinforce a stable economic environment.

The

profits).

financial

finances are,

in the current year,
The general government
2001/2002, expected to be close to balance,
in actual and
also in cyclically adjusted terms, thus fulfilling the requirements
of the stability and growth pact. However, the Council notes
that a projected deficit of a little more than 1 % of GDP
emerges in 2002/2003 and persists, around that level, in the
remaining years of the plan to 2006/2007. A deficit of around
1 % of GDP now emerges one year earlier than in the previous
update,
largely as the result of temporary economic factors
(including a lower level of GDP than previously projected,
and
Council
company
lower
acknowledges that,
this 1 % of GDP
in the medium term,
deficit persists in the projections, both unadjusted and cyclically
adjusted, as a result of the use of a very cautious trend growth
assumption of 2,25 % per annum from 2003/2004 onwards
and as a result of addressing the low level of government
investment (cid:151) as suggested in the 2001 broad economic
policy guidelines. However,
in view of a sustained deficit of
1 % of GDP, or
thereabouts, which is based on a very
it notes the requirements of
cautious growth assumption,
(cid:145)close to balance or surplus in the medium term(cid:146) contained
in the stability and growth pact. Therefore the Council
encourages the government to be alive to any deterioration
in public finances that would take them away from the
terms of the Stability and Growth Pact and,
if necessary, to
take remedial action. The Council appreciates that the debt to
GDP ratio is low and falling. Gross debt relative to GDP falls
from 40 % in 2000/2001 to the low level of 36,3 % by
2006/2007.

the long-term outlook of

The Council notes that the programme provides an assessment
of
the public finances and a
description of policies that could be addressed to minimise
the impact of ageing. The Council considers that
the UK,
with a low and falling debt
is in a good
position to meet the consequences of ageing populations and
welcomes that the public finances are sustainable on current
policies.

to GDP ratio,

The Council welcomes the structural reforms included in the
the progress on
programme.
productivity
economic
performance and secure further improvements in the labour
market.

It notes, with approval,
should

reforms

raise

help

that

to