Bank of Ireland's half-year results impressed the markets, with all but a few dissenters suggesting its profits and share price will continue to rise. The bank skilfully managed the good news, telling analysts a couple of months ago that business was booming and broadly guiding them to expect the 12 per cent increase in pre-tax profits to €567 million (£446 million) announced yesterday.

Chief executive, Mr Maurice Keane, yesterday said he was confident about the outlook for the Irish economy and seemed unconcerned that inflationary pressures could threaten the bank's business.

He said he believed the unusual circumstances driving inflation, such as the euro's weakness and spiralling oil prices, would have some effect but this would not be severe.

Mr Keane suggested the main impact would be to slow the rate of growth in the economy to about 5 or 6 per cent, which would be "desirable".

Bank of Ireland is well protected from a collapse in the property market, for instance. Stress tests that examine the effect of a "worst case scenario" 3 per cent rise in interest rates and a 40 per cent fall in house prices suggest they would have only a minor impact on group profits.

The group has also stressed that about 16 per cent of profits are earned outside the Republic, with its IFSC operations and Bank of Ireland Asset Management successfully bringing in substantial fees on international deals.

Mr Keane said that while Bank of Ireland did not have a substantial network in markets such as the US, it could still achieve income growth there in a cost effective way. Its strategy in the UK, to diversify Bristol & West beyond the mortgage market, is also falling into place. Recent acquisitions of Chase de Vere and Money eXtra.com are giving the building society an opening into the investment intermediary and advice market.

Doubts still linger though over the long-term prospects in the UK. Bristol & West is still a small player in the competitive mortgage market and while the latest acquisitions are welcome it has still some way to go to achieve a substantial presence there.

Mr Keane said the scepticism among UK analysts regarding the Irish economy's health is still weighing on the share price. Bank of Ireland shares have increased in value by about 30 per cent since August as the financial sector once again found favour with investors and most analysts believe it can make further gains.

Dolmen Butler Briscoe, however, is telling its clients that the bank's shares have peaked and should be sold. Commerzbank in the UK is also adopting a less than benign stance, though the majority of Irish stockbrokers believe the group can continue to drive earnings growth.

The bank must also further diversify beyond the Irish market. Notwithstanding the steady increase in foreign income, the bank is still reliant on continuing good times at home.