Bets are on that sterling is headed for the euro melting pot after an apparently glitch-free introduction of euro notes and coins. The British pound suffered its biggest ever one-day fall against the single currency yesterday as markets cheered the euro's transition from "virtual" to physical currency and responded to pro-euro comments by Britain's Europe Minister Mr Peter Hain.

In an interview on Tuesday, Mr Hain warned that Britain could not be a decisive power in Europe if it stayed out of the euro currency zone forever.

Both the government and the Bank of England have said sterling would need to depreciate before it could be locked against the euro permanently at a competitive rate.

"The successful launch of euro notes and coins makes it more likely that the government will call a referendum in this parliament," said Mr Nick Parsons, global head of foreign exchange research at Commerzbank.

Uncertainty over Britain's euro entry prospects has long been sterling's Achilles' heel, clouding an otherwise supportive economic picture.

Britain has the fastest growing economy and the highest interest rates of the Group of Seven industrial nations, yet sterling has been stuck in a tiny six-pence range against the euro for more than two years.

Even sterling's 2.5 per cent slide to 62.80p yesterday - its biggest one-day fall since the currency's introduction in January 1999 - has only pushed it back to levels where it was trading less than a month ago.

Most economists predict sterling will need to fall to around 67p to the euro if Britain is to join the euro at a competitive rate.

This level, ironically, is not far from sterling's old central parity rate in the European Exchange Rate Mechanism, from which the British currency was ignominiously ejected in 1992.