Ulster Bank expects at least two further rises in euro-zone interest rates next year, taking the European Central Bank's base rate to 2.75 per cent.

The bank expects the ECB, which recently raised rates for the first time in five years, to increase rates again by a quarter of a percentage point in February.

After assessing the impact of the rate rises, Ulster Bank expects the ECB to raise rates again in the summer, if economic conditions permit.

The bank's economist Niall Dunne sees interest rates finishing the year at 2.75 per cent, with the risks to the upside.

"The ECB has now embarked on a process of normalising euro interest rates, a process that will take 12 to 18 months and which ultimately will take euro rates back to a neutral 3 per cent level," he says.

Meanwhile, Mr Dunne expects further rate cuts in the UK in the first half of 2006, prompting the euro to strengthen against sterling.

"Heading into the traditionally bumper festive retail season, it's no exaggeration to say that UK multiples are busy jingling the alarm bells, and a poor Christmas period for the high street could seal the deal for a rate cut early in the New Year," he says.