Pound fall 'brings euro entry closer'

THE pound fell to its lowest rate against the euro for two and a half years, increasing speculation that Britain could soon join the single currency. At 65p per euro it was just a fraction above the level at which many economists believe the Government could sign up to the euro without long-term damage to Britain's competitiveness.

Sterling was unsettled by reports earlier this month suggesting that Prime Minister Tony Blair was set to call a referendum on Britain joining the single currency.

Sterling hasn't been lower against the euro since October 1999. However, some analysts believe the pound may have a little further to fall before it is at a level at which Chancellor Gordon Brown would decide the exchange rate test had been met.

'The euro's gains against the dollar are helping it go higher against sterling,' said Ian Stannard, foreign exchange strategist at BNP Paribas. 'Now the 65p level has been breached, the next big target is 67p, a level we feel is compatible with UK euro entry.'

Europe Minister Peter Hain was forced to admit at the weekend that public cynicism may have put paid to plans to hold a referendum on the euro next year. He said the Government clearly had a 'trust' problem which would have to be dealt with before a vote could be held.

Meanwhile a new poll showed that anti-euro feeling has hit its highest this year, as 49% of workers said they would reject entry to the single currency even if the Government recommended it. The Barclays Capital survey showed a 3% rise from last month.

Manufacturers and exporters welcomed the fall in the value of the pound against the single currency which has been matched by the collapsing value of the US dollar. The euro has surged in recent weeks against the weakened dollar. The pound has also gained ground against the US currency, hitting a 17-month high. This means that despite the pound's losses against the euro, in balance it has remained relatively stable.

The Bank of England will be reassured by that. The Bank's Monetary Policy Committee has long feared that an inflationary slide in the pound would force it to raise interest rates.