Markets 'forecast delay in Britain joining euro'
The currency markets are predicting that Britain is unlikely to join the euro during the next parliament.
A Deutsche Bank report based on market expectations suggests there is only a 10% chance that Britain will be in the euro by 2004.
But Ciaran Barr, chief UK economist at Deutsche Bank, says he rates the chances of Britain joining the currency before going to the polls again as 50%.
He says he does not think the markets have taken into account the effect of a political campaign to join the euro. "We think the markets are a little complacent with the prospect of Britain joining the euro in the next few years.
"We believe the probability is about 50%, and we believe the Prime Minister will campaign to take us into the European Monetary Union during the next parliament."
Mr Barr adds that the Government's five economic tests, which are based on whether the UK economy could work with European interest rates, could now be met.
The report, to be published later today, calculates the likelihood of Britain joining the euro based on expected future fluctuations between the euro and the pound.
Mr Barr says he does not think the strong pound will stand in the way of Britain joining the European Monetary Union. "The strength of the pound is not as big a problem as some times believed. Once we have won a referendum, getting sterling down is easier."
Yesterday, Bank of England governor Sir Edward George warned that deliberately devaluing sterling could put the stability of the economy at risk.
Although he was not specifically talking about euro entry, he said: "What we cannot do... is to target the exchange rate, without putting the stability of the economy as a whole at risk or re-emerging inflation."
