It now appears the pound has finally turned the corner against sterling. Over the past few months sterling has been seen as a safe haven currency, somewhere to put money in case monetary union either did not work out or the new euro currency proved weak.

Investors could also get high returns on sterling investments as British rates are among the highest of the major currencies.

This has resulted in sterling soaring on the foreign exchange markets while the pound, now effectively locked into the deutschmark, sunk in tandem. But a resurgent mark means that the pound is finally heading back towards 90p against sterling and away from what the Central Bank considered to be very dangerous territory in terms of higher import costs at close to 80p.

Many analysts have argued over the past few months that sterling was overvalued but, undaunted, the speculators and traders bought it. One of the reasons was that many were betting that British rates would be increased once again.

But over the past week, that has become very much a minority view and the majority now believes that British interest rates have probably peaked.

The Bank of England Monetary Policy Committee has been divided in recent months over whether or not to raise rates further. It has only been the casting vote of the governor Mr Eddie George which has stopped further rises. But according to the Financial Times, one member usually noted for hawkish or hardline views has jumped into the camp advocating no further rises. Now it is confirmed that Prof Charles Goodhart has indeed altered his position, it is difficult to imagine that rates will be hiked again. In addition, the Bank of England's quarterly inflation report may have been the defining moment. In February, the Bank stunned the markets, stating that the government's 2.5 per cent inflation target was unlikely to be met in the light of existing monetary policy. But the softer tone last Wednesday means that all bets on further rate rises are off.

The consensus among many commentators now is that the Bank of England is likely to cut about a half percentage point off key British rates by the end of this year or beginning of next, leaving them at 6.75 per cent. Nevertheless, it is still not clear how far the authorities will be prepared to let sterling slip. The Bank of England will be worried that a sharp decline in the currency could fuel inflation which is running at about 2.7 per cent.

But there is also mounting evidence that the economy is beginning to feel the effect of high interest rates and a strong currency.

Earlier this week, it was confirmed that the manufacturing sector is in recession. There are also signs that consumer confidence is falling back and with most of the windfall gains from building society privatisations now spent, there is unlikely to be a sudden resurgence in spending. In fact, the British taxpayer will actually pay more than an additional £5 to £6 billion in taxation this year.

On top of that, survey evidence from the Confederation of British Industry and official trade data have shown exports tumbling and confidence at an 18-year low due to sterling's strong rise against European currencies in the last two years. Sterling has recently fallen back slightly from the nine-and-a-half year high of 3.10 marks it hit at the end of March. It was trading at DM 2.88 yesterday.

Analysts argue that allowing sterling to fall will help the manufacturing sector, but at around DM2.90 it still remains uncompetitive and exports will remain weak. As a result the doves or those opposed to rate rises will find their hand strengthened and if they have their way, sterling may well fall towards DM2.80.

But this sort of argument has been around for more than a year now and sterling has gone from strength to strength.

So what is the difference now? For the first time there is evidence that the British labour market is cooling, with unemployment in the first three months falling at less than a quarter of the average declines of last year. This means that there is less concern about the potential of wage inflation although it did pick up slightly last month.

The other benefit of sterling's decline apart from cooling inflationary fears here will be the likely boost to those expecting an early British entry to the euro. A recent parliamentary select committee report indicated that it would take at least five years to ascertain whether the five criteria for membership laid down by the Chancellor, Gordon Brown, had been met. However, Mr Brown himself has insisted that this is completely wrong.

Probably the one criteria which matters most to Mr Brown is whether British rates have come down enough to match those prevailing in euroland.

Thus as sterling weakens the prospects of a British entry increase correspondingly which is good news for Ireland. The only real obstacle will be popular opinion which is still decidedly anti-European.

However, there are signs of change. Recent sterling strength has done serious harm to much of Britain's industrial sector. And the recent vote at Vauxhall, where workers had to approve the linkage of pay with exchange rates, will concentrate many minds. This is coupled with Toyota's decision last December to build a new plant in France, rejecting a British location.

These factors could do a lot to turn the tide of opinion in favour of the euro. And if that happens it will be a relief to all those in Ireland who will be subject to sterling volatility as Britain remains outside euroland over the first few years of the single currency.