MPC's Barker sees 'difficulties' if Britain joins euro this year

Britain would face "economic difficulties" if it tried to join the euro this year, a member of the Bank of England's Monetary Policy Committee has warned.

Kate Barker, one of four "outside" members of the nine-strong committee that sets interest rates, said the exchange rate and the difference between the UK and Europe on economic policy could be obstacles. Ms Barker said she was worried about prolonged slow growth in European domestic demand. "In the long run I would probably think it's a good thing to join the euro. It's a different question if you ask would I want to join the euro now this year," she said. "Economically I can see some difficulties in the short term."

Her remarks contrast with the strictly neutral line adopted by the Governor, Sir Edward George. As an independent rather than a Bank official, Ms Barker has greater freedom to speak out on politically sensitive issues. The Government is believed to have ruled out holding a referendum on the euro this year. The Chancellor, Gordon Brown, is expected to say in June that the Treasury's five tests have not been met.

In an interview with The Sunday Telegraph, Ms Barker indicated she did not believe the economy needed another rate cut. Some economists believe the Bank will use February's inflation report to cut its optimistic forecast for GDP growth of 3 per cent this year ahead of a rate cut either next month or in March. But Ms Barker said: "I can't see any reason to feel that the forecasts we produced in November are going to need a huge amount of revision."

She added that the pace of house price inflation was still "pretty quick" and said she did not believe consumer demand would collapse. "I've got slightly more faith in the consumer than some commentators," she said. "There's not this great sign that consumers are spending every last penny they've got."

Meanwhile, an economic forecaster, which uses the Treasury's economic model, said yesterday the economy would grow just 2 per cent this year, prompting the Bank to cut rates to a 49-year low of 3.5 per cent. Ernst & Young's Item Club said growth in consumer spending and fixed investment would undershoot the Treasury's pre-Budget report forecasts.

It warned the economy could "capsize" if consumer spending slowed before investment and export demand revived.