It is now beginning to look increasingly likely that sterling will not be a member of the euro as early as many here had been hoping.

The primary risk for the Republic going into the euro was that our largest trading partner and indeed Northern Ireland were outside the zone.

As a result, many Irish companies do not benefit from the exchange rate savings to the extent their Continental counterparts do as they have to worry about sterling fluctuations, and the British currency has traditionally been a volatile one. On top of that, a strong sterling could lead to imported inflation here, while a weak sterling could mean a general loss of competitiveness. Indeed, the latest inflation data this week pointed to the possibility that strong domestic demand is already feeding through to higher prices, particularly given the increases in alcohol prices.

Almost all commentators have been predicting for the past few years that sterling will eventually decline in value. Constant reference was made to the impact the strength of sterling was having on British exporters, the decline in manufacturing and the near-recession of last year.

But now it appears that this may not be the case. There is a view that the British economy has "snapped back" from the financial market turmoil of last year. According to Mr Brian Martin, the chief economist at Barclays in London, the risk is that the British economy will be even stronger and will be stronger for longer than even the bulls are predicting.

And according to Goodbody Stockbrokers' chief economist, Mr Colin Hunt, the whole notion that sterling has been overvalued could be misplaced. He points out that prior to 1992, sterling traditionally traded around 2.90 deutschmarks and it was only between 1992 and 1996 that 2.20 deutschmarks to 2.60 deutschmarks was the norm. As a result, he argues that sterling is probably fairly valued where it is - that is 2.90 deutschmarks to 3.0 deutschmarks or 65 pence or 66 pence sterling against the euro.

Furthermore, there is now a greater confidence in the general policy framework in Britain and particularly in the Bank of England's ability to hit its inflation target, which should be sterling-supportive. Bulls also point to low unemployment, the absence of negative equity and increasing household wealth, leading to growing consumer confidence. Even exporter confidence is rising despite sterling's strength, and inflation is well within the Bank of England's target.

There is thus a reasonable chance that the British economy will grow by 2.5 per cent to 3 per cent next year and the year after. As a result sterling could also stay stronger for longer than many had been predicting.

If this is the case it could also have an impact on sterling's entry to the euro zone. One of the key conditions which the British government says has to be met before a referendum can be held on euro participation, is that the economies of Britain and Europe converge. The original thinking was that British rates would be on the way down in 2000 or 2001 as the economy fell back and they would thus naturally converge with European rates which would by then be on the way up. It is true the rates would have been going in opposite directions but it still would have been close enough for the Chancellor, Mr Gordon Brown, to declare nominal convergence.

However, if the British economy is on the brink of a real turnaround, then rates will probably be on the way back up again in 2000 and 2001, whereas euro-zone rates do not look as if they are going anywhere in a hurry. Even if the German and Italian economies are recovering somewhat, few think there will be anything but a glimmer this year, and even if rates are increasing next year they are unlikely to head above 3.5 per cent in the foreseeable future.

This makes a referendum immediately after the next British election less likely. And while the European election results this week in Britain have to be treated with caution because of the extremely low turnout, they underline the strength of euro scepticism there. It was also noticeable that the prime minister, Mr Tony Blair himself admitted that he is not ready to lead any campaign for Britain to join the euro, and that is surely the minimum that would be needed to persuade Britain to give up its currency.

This, of course, could leave Ireland with bigger problems than expected. The authorities, particularly the Central Bank governor and even the Minister for Finance, Mr McCreevy, have stated that it is undoubtedly in our interests for Britain to join.

One immediate risk is that imported inflation could pick up. At the moment the pound is trading around 82 pence against sterling and the last time it was at that level, imported inflation did rise. It is now looking as if inflation will increase in the second half of this year as the existing currency differential feeds through to prices in the shops.

Of course, it is also making life difficult for all firms which import goods or services from Britain.