The pound has fallen below 83p for the first time this year, as sterling reached record highs against the euro.

Mr Jim Power, chief economist at Bank of Ireland, said there was no reason whatsoever to buy the euro at the moment and every reason to buy sterling.

"Sterling interest rates, at 5.25 per cent, are over twice the rate of return on the euro," he noted, adding that sentiment about the economic prospects of the UK are also better than most of the euro zone.

Sterling rose yesterday to 65.32p against the euro, from 65.70p, leaving the pound at 82.94p. However, the euro climbed a bit against the dollar, to $1.0591, compared to $1.0569 late on Monday, but lingered near its lowest level yet.

It was slightly supported by comments from European Central Bank president, Mr Wim Duisenberg, who said he was not concerned by the euro's decline against the dollar.

According to Mr Power, the euro is set for further declines against sterling, even if there is another small interest rate cut at the Bank of England's regular meeting today and tomorrow. Sterling is heading for 63p, which would equate to about 80p for the pound, even lower than the levels it reached last year, he added.

He added that the fall was likely to mean a deterioration in Irish inflation prospects. The strengthening of the pound last year towards 90p had a positive impact on the inflation rate, but that was now likely to be undone, he said.

"Inflation is now likely to end the year at 2.3 per cent or 2.5 per cent, with an average over the whole year of 1.8 per cent." It was the news that Britain's manufacturers are pulling themselves out of recession, as cost-cutting and job-shedding finally start to pay dividends, which provided the impetus for sterling.

The British Chartered Institute of Purchasing and Supply's (CIPS) latest survey, published yesterday, showed that manufacturing had shrunk again in April, but at its slowest rate for a year.

The CIPS purchasing managers' index rose to 48.1 last month, from a revised 47.2 in March.