THE pound fell further against sterling yesterday as the British currency retained its recent upward momentum. While the pound fell below 102p sterling it remained the strongest currency in the ERM band.

Sterling has been driven higher on a wave of enthusiasm following the Conservative Party conference and particularly the speech by the Chancellor, Mr Kenneth Clarke. However, analysts are divided over how long sterling will remain in demand.

Sterling reached a 20 month high at 2.4174 deutschmarks in the late afternoon, well above the Friday level of DM2.4133.

British wholesale price figures for September had little impact on sterling, while inflationary pressures remain tow.

Mr Eoin Fahy, chief economist at Ulster Bank Markets, said he would not expect the pound to remain below 102p for longer than two to four weeks. He added that there is a number of reasons why sterling will fall in the medium term.

Sterling, he said, could not appreciate much more against the deutschmark. "While a strong economy is undoubtedly good for the country, an overheating economy is not good." Mr Fahy added that Britain was running the risk of continuing the boom bust cycle it experienced in the late 1980s.

The other reason that sterling would fall over the coming months was that international investors would not want to accept the 3 per cent inflation rate which the British were happy with, Mr Fahy said.

In addition, he argued that the market perception was that sterling was definitely not going into monetary union while the pound was. "That can only help strengthen the pound against sterling," Mr Fahy said.

But Mr Jim Power, chief economist at Bank of Ireland, said he could see sterling heading as high as 2.4 deutschmarks from DM2.4170 at the close yesterday. That, he said, could mean the pound moving below 101p, onless the Central Bank allows it to strengthen.

"The bank must allow the exchange rate to strengthen against the mark and, thus, against sterling," said Mr Power.

It is taking a serious risk, given the inflationary implications of a weakening pound against sterling and the probability of a very expansionary Budget next year.

The difficulty for the Central Bank is that it appears to have been attempting to manage the exchange rate as well as interest rates.

The bank has been selling pounds, in part due to an attempt to stop a revaluation of the green pound, which would cut the value of agricultural subsidies to farmers. It may also have been attempting to hold the pound in the old 2.2 per cent ERM band.

In recent weeks, the pound has been close to breaking out of the top of the old band.