The prospects for Britain's early entry into the euro seemed to have receded after the chief of the country's central bank and Downing Street both poured cold water on the idea.
Eddie George, governor of the Bank of England, warned last night that the high value of sterling against the euro was a 'real obstacle to early entry into the euro.'
He said that cutting interest rates to bring the pound into line with the euro was a 'simplistic' approach which risked stoking inflation.
The single currency has dominated political debate since last week's landslide general election win by Prime Minister Tony Blair raised expectations of an early referendum on membership.
But the comments by George, a close ally of the influential finance minister Gordon Brown, were seen as evidence that the government was going to resist calls for a firm timetable on entry.
Earlier, Blair's official spokesman said Downing Street was 'not going to bounce the country into a referendum' on the issue. 'No matter how much overinterpretation people want to make about what has happened in the last few days, the policy remains the same,' the spokesman added.
Blair has said he favours euro membership in principle but that five tests on economic convergence must first be passed before the issue is put to a national referendum.
George said the pound needed to be significantly lower than last night's rate of 1.628 euros to the pound before Britain could join up. The euro would also need to strengthen, he said, though he saw few signs of that happening.
Fears that bringing the pound into step with the euro could increase inflationary pressure were heightened by official figures released yesterday which showed inflation had hit a two-year high in May.
