Whether or not the United Kingdom decides to participate in a move to a single European currency, we will be among those who meet the strict conditions required for entry. The Government believe that these conditions provide a valuable framework for setting policy in the medium term.

And that means that monetary policy is primarily directed at the maintenance of sterling's parity within the exchange rate mechanism. In due course we shall move to the narrow band of the ERM, at the current central rate of 2.95 DM.

Since ERM entry was announced in October 1990, sterling has remained within its permitted ERM bands, while interest rates have been reduced by 41 per cent. The differential between United Kingdom and German interest rates is now at its lowest for a decade.

In common with all the major countries within the ERM, I shall set a domestic monetary target. M0, the narrow measure of money, has stayed comfortably within the range I set in the last Budget. For the year ahead I propose to continue the target range for narrow money of 0 to 4 per cent. This is consistent with a further fall in inflation combined with a recovery in output. I shall continue to watch closely other indicators of monetary conditions, including broad money and asset prices.