THE pound drifted down against sterling and the deutschmark as the British currency continued to power ahead. Sterling reached an almost five year high against the mark and a five month high against the dollar, on expectations that British interest rates would have to rise significantly.

A statement from the Summit of the Eight at the weekend that Britain needs to keep inflation in check, as well as much stronger than expected retail sales data released last week, have kept talk of further rate increases on the boil. The data was the highest since the Lawson boom of 1987 to 1988.

Mr Jim Power, chief economist at Bank of Ireland, said the retail sales figures proved that all the windfall gains from building society demergers were feeding straight through to a rise in spending.

"UK interest rates are likely to reach 7.5 per cent by the end of this year or beginning of next year," according to Mr Power. Rates are currently at 6.5 per cent.

As a result the pound fell against sterling closing at 90.72p from 91.04 on Friday and at 2.6100 marks from 2.6083. However, sterling broke through 2.87 marks from just over 2.86 on Friday.