STERLING is expected to put in another good week on the markets, bringing further good news for Irish exporters reliant on the British market for the bulk of their business.

Sterling traded at close to parity with the pound on Friday and most market commentators expect these levels will be sustained at least in the short term.

Some analysts believe sterling is likely to stay strong over the coming weeks. Taking a long term view, most expect sterling to weaken again early next year ahead of the British general election.

Confounding all of the pundits, sterling has managed to stage a remarkable recovery on the international markets. Rising by 3 per cent in value against the pound last week, it is now at its strongest level for 18 months.

This development is welcome news for exporters and the many Irish companies with operations in Britain, which will see sterling's sharp appreciation translate into higher profits.

The dramatic improvement, however, will continue to cause problems for the Central Bank, pulling the pound higher against other EU currencies. It also raises concerns on the inflationary front, with fears that the higher cost of goods imported from Britain will trigger price inflation in the economy. With more than half of all imported consumer items currently coming from Britain, the Central Bank will be worried that the knock on inflationary effect could be substantial if sterling remains strong.

The recovery of the British currency against the major currencies confounds warnings by bodies such as the Confederation of British Industry that sterling would sink like a stone unless it was hitched to the proposed single currency.

Analysts say sterling has been powering ahead on the back of a belief in Britain's low inflation credentials and the declaration by the Chancellor of the Exchequer, Mr Kenneth Clarke, that he would not hesitate to raise rates if he felt the circumstances demanded it.