9:24am UK, Tuesday June 10, 2003

The City has given a cool reaction to Gordon Brown's assessment on the euro.

Four out of the five economic tests on whether the UK should join the euro had not yet been met.

180 counting Euro notes euros money

Counting out decision

Commentators said said that Mr Brown's assessment of the economic tests would not come as a surprise in the City.

"It was sufficiently well leaked", Barclays' Hilary Cook said.

Long prospects

While he gave some strong arguments in favour of joining, it would be "challenging" to achieve sufficient change in the UK economy in the next year, she said.

Meanwhile Philip Shaw from Investec thought it was equally unlikely that there would be a major change in the economy in the next year, to help convergence.

"Whilst the door is not closed, the situation will not have changed dramatically in a year's time", he said.

"The door is still open for a referendum but it's pretty unlikely."

Inflation improvement

But economists welcomed the proposed switch to the Harmonised Index of Consumer Prices (HICP) saying it would provide a more stable measure of UK inflation.

The current underlying figure, which strips out mortgage interest payments, was 3% in April - compared with 1.5% on an HICP basis.

Much of the difference is due to the impact of housing and Council Tax costs, which are not included in the European favoured inflation measure.

Most City experts now expect Mr Brown to revise down the Bank of England's inflation target from the current 2.5% to 2% - the same as the European Central Bank.