Sterling hits new record on the euro

The euro has fallen further against sterling, providing a new inflationary threat for the Republic's economy. The pound is now worth 78.81p sterling, compared to 79.12p the previous day and sustained further weakness will add to inflationary pressures by pushing up import prices. Sterling hit a high against the euro yesterday, inflicting further pain on Britain's manufacturers but giving a boost to Irish exporters to Britain.

The rise took sterling as high as 61.88p against the euro, a level equivalent to DM3.16 - its highest level since the summer of 1989.

Sterling has increased strongly in the wake of Thursday's decision by the Bank of England's monetary policy committee to raise the base interest rate by a quarter point to 5.75 per cent.

But the momentum for yesterday's move came from a weakness in the euro, which was thrust lower after benign inflation data from the US. The US data also encouraged Wall Street, where share prices rose last night.

Recent rises in the value of the sterling - which now stands at its highest level on a trade-weighted basis in almost two years - takes it further away from levels at which British industry would be comfortable joining European Economic and Monetary Union.

A survey by the Confederation of British Industry suggested manufacturers would feel happy with an entry rate of around DM2.65 to the pound. Meanwhile, a recent report by economists from the International Monetary Fund estimated an equilibrium rate for sterling of around 80p, or DM2.44.

"It is becoming fanciful to look for such a substantial decline in sterling ahead of possible UK membership," said Mr David Bloom, currency analyst at HSBC in London.

Ms Kate Barker, chief economist at the CBI, said: "The strength of sterling is making life extremely difficult for manufacturers and could lead large international firms to move their plants outside the UK."

Manufacturers said the rise would intensify the pain in the sector.

For the economy here, the strength of sterling is unwelcome at a time when the rate of inflation is already picking up. However, exporters to the UK are benefiting from the most favourable exchange rate for years. US stocks stayed strongly positive in late trading last night as stronger-than-expected results from leading chipmaker Intel stoked a market newly reassured about the interest rate outlook.

"The Intel numbers were obviously very good," said Mr Rick Meckler, senior managing director at Liberty View in Jersey City, New Jersey. "It just helped to reinforce the view of technology players that technology is the place to be for earnings growth despite higher interest rates."

The Dow Jones industrial average was up 134 points, or 1.16 per cent, at 11,716, putting the 30-stock index on track for its third record close this week. Nearly half of the index's gains came from Intel.