Worries about the British economy and Prime Minister Tony Blair's staunch support for the United States in the Iraq crisis have driven sterling down to a four-year low against the euro.

The euro smashed above 0.68 pounds last week for the first time since March 1999, providing a much-needed fillip to Britain's manufacturers whose exports have been undermined by the strength of sterling in recent years.

The pound has fallen by about five per cent against the euro since the start of the year and by about four per cent against the dollar since the start of February.

On Friday, the euro bought 0.6816 pounds while sterling traded at 1.5783 dollars.

Economists warned this week that the fall in the value of the pound could see France overtake Britain into the place of the world's fourth-biggest economy.

Analysts spy several factors behind the fall, not least Blair's hard-line stance over Iraq which

has proved unpopular with many voters and members of his own Labour Party.

"The weakness of sterling is partly related to the political difficulties that Blair is having," said Barclays Capital analyst Jane Foley.

"Clearly his position on Iraq is not backed by the whole of the Labour Party, it is not backed by the electorate and that will weaken his position going forward, and that's something which is a sterlingnegative factor," she added.

Blair on Wednesday suffered his biggest ruling party revolt since becoming Britain's leader six years ago after more than a quarter of Labour members of parliament (MPs) came down against war on Iraq.

ABN Amro analyst Rob Hayward said the scale of the revolt left Blair facing the prospect of a devastating party split, particularly if he were to join the United States in attacking Iraq without a second UN resolution.

"Blair's obviously in a pretty difficult position and is potentially going to be undermined. There's

talk even more MPs are dissatisfied with policy so unless things go smoothly there's a danger his position may be jeopardised," he said.

Britain's strong backing for the United States over Iraq has also reduced sterling's attraction as a relatively safe-haven in the economic and political storm because of worries the country could be targeted by terrorists.

"There is a perception that because the UK is so closely aligned with the United States, that does leave the UK vulnerable," said Commerzbank currency strategist Nick Parsons.

Also piling the pressure on the pound are worries about the outlook for the British economy, which has hitherto avoided the worst of the global economic slowdown.

The Bank of England this month cut its growth forecast for British gross domestic product growth in 2003 to 2.5 per cent from a previous prediction of around 3.0 per cent.