Economy is on track 'to join euro in the near future'

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The Independent Online

Britain could join the single currency "in the near future" because the economy has already converged with those of the 11 countries in the eurozone, according to an independent analysis by House of Commons officials.

The unpublished report, obtained by The Independent, comes as the Government is under growing pressure to make a firm statement of intent to join the euro, in order to bring down the overvalued pound.

Yesterday the Bank of England's monetary policy committee opted to leave interest rates unchanged at 6 per cent, against a background of mixed evidence on the economy. The decision came as a relief to businesses and unions, which have been lobbying for action to bring down the painfully strong exchange rate. Many want the Bank to cut borrowing costs, but City analysts believe more increases are still likely.

A rate increase yesterday would have been widely seen as a damning verdict on last month's Budget, which was unpopular with business organisations for not removing all threat of further rises. Digby Jones, director general of the Confederation of British Industry, said: "It would appear that manufacturing is not even on the Chancellor's radar screen." He said Gordon Brown should be doing more to help manufacturers. Yesterday Toyota warned it could reconsider its investments in Britain because of sterling's strength against the euro.

The Commons report, compiled by the House of Commons Library, says: "If the UK Government decided in the near future to recommend entry it would do so with a set of economic indicators that, with the exception of the exchange rate, would almost certainly pass any reasonable convergence assessment process."

The report says growth in Britain is within half a percentage point of the eurozone average. The inflation rate has moved closer to the eurozone average, it says, although interest rates in Britain remainabout 2.5 points higher.

However, the report admits the exchange rate remains "the issue" to to be settled before possible entry. But Mr Brown told the Commons yesterday that he would not intervene to reduce the level of the pound.