Prospects for monetary stability and the economics of EMU

Quarterly Bulletin 1997 Q1
Published on 01 March 1997

The Governor reviews the recent performance of the British economy and argues that the encouraging record can be maintained, and even improved upon, providing a firm grip is kept on inflation, fiscal policy is prudent and sustainable, and supply-side policies promote flexibility and market competition, including an emphasis on free trade. The Governor welcomes the modest rise in interest rates in October, but notes that some further rise in rates may become necessary in due course. He comments that economic forecasters agree on an outlook combining continuing growth with low inflation over the next two years.

The Governor argues that Britain’s interest lies unambiguously in a stable and prosperous Europe. He reviews the economic arguments for and against EMU, noting that the risks are greater if EMU starts from a position in which there is substantial divergence in the economic situations of the various member countries. Thus, it is vitally important for all to pursue macroeconomic discipline and structural flexibility. Finally, the Governor notes that Britain must be prepared for the proposed EMU starting date of 1 January 1999 whether or not EMU will happen, and whether or not Britain is in or out.

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