ECB's Trichet says UK must respect EU budget rules

By David Milliken and Kirsten Donovan

LONDON (Reuters) - The British government must respect European Union budget rules when considering a fiscal stimulus plan to lift the economy, European Central Bank President Jean-Claude Trichet said on Tuesday.

Answering questions at an event organised by the Daiwa Anglo-Japanese foundation in London, he also said that the euro zone economy was not in a deflationary situation.

Asked his views on British Prime Minister Gordon Brown's plans to borrow to boost public spending in an effort to avert a deep recession, Trichet said: "All I can say is that the UK as well as (euro zone countries) ... are members of the EU and therefore members of the Stability and Growth Pact."

The pact limits national budget deficits to 3 percent of gross domestic product.

Trichet also said he saw no sign of deflation in the euro zone.

"We are not in a situation that characterises deflation. If I look at some facts and figures, I don't see yet any trace of deflation or negative inflation," he said.

It is important to distinguish between disinflation and deflation, Trichet added.

He stressed that confidence is essential as the world grapples with the effects of the financial crisis.