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By David Milliken and Kirsten Donovan
LONDON, Nov 18 (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.
"Economics is complex and confidence is of the essence ... At a global level, confidence is the thing that is lacking most," he said.
Countries on both sides of the Atlantic were doing what was necessary to manage the financial crisis, he said.
Stressing he was not referring to any particular country, Trichet said that if that a country people lacked confidence in its public finances, then fiscal stimulus was likely to prove ineffective.
Brown's government is expected to announce unfunded tax cuts in its pre-budget report on Monday as part of its efforts to mute what is expected to be a deep and prolonged recession in Britain.
The opposition Conservatives say it is time to reel in spending growth.
In July, before the worst effects of the financial crisis hit, the European Union's executive arm called for Britain to cut its deficit by the end of the 2009-10 fiscal year.
However, since Britain is outside the euro zone, the bloc cannot fine it for breaching the deficit rules.
At that time, the European Commission expected the shortfall to swell to 3.3 percent of GDP in the fiscal years 2008-09 and 2009-10 with no policy change. (Additional reporting by Adrian Croft and Christina Fincher; Editing by Gary Crosse)