THE pound has managed to remain steady against sterling, after the UK currency reached four year highs against the dollar.

Sterling gained after the release of an "extraordinary" set of public sector borrowing requirement (PSBR) figures yesterday.

The rises against the dollar also sparked a fresh upward surge against the deutschmark.

The pound closed at 100.18p against sterling from 100.08p and at DM2.5137.

"Sterling made headway after a pretty staggering PSBR," said Mr Colin Hunt, economist at Bank of Ireland. "We were expecting a figure of around £2 billion, so when it came in at £4.4 billion it made the market a bit suspicious that Chancellor Kenneth Clarke will try and do something spectacular with the budget at the end of the month."

The focus of dealers' attention for sterling has now switched to retail sales figures which will be released tomorrow. In the longer term the British budget will be closely watched.

According to Mr Hunt, the budget will be the effective launch of the Tory re election campaign. He is expecting it to be positive for sterling. He is predicting that while the budget will be voter friendly delivering limited tax cuts, it will also be fiscally prudent.

"Mr Clarke may deliver a rolling programme of tax reform with a promise that, if re elected, the Tories will deliver a top rate of tax around 35 per cent and a basic rate of 20 per cent," he said.

Nevertheless, worries about the budget will cap sterling on the upside for now, according to Mr Jeremy Hawkins chief economist at Bank of America.