The prime minister of Sweden, Goran Persson, has indicated his government may hold a referendum on joining the euro next year. Polls indicate that a majority of Swedes now favour entry.

"If Sweden votes 'yes' next year, it would expose Britain as the only major economy in the EU to remain outside the euro," Danny Gabay of JP Morgan told the FT.

Denmark has this week also announced its intention to hold a referendum on the euro next year - further increasing the pressure on Tony Blair to clarify his government's intentions.

These developments come after an NOP poll for Channel 4's Powerhouse programme 51 per cent of Briton's would back membership if government and business leaders supported it.

Today's Times also reports that ministers in Italy would like to see an Anglo-Italian partnership develop in order to resist any move towards a European superstate.