And Chancellor Gordon Brown is reportedly ready to throw his weight behind the campaign for British membership.

I think we may well see a referendum next year but I think the economic jury is still out

Peter Mandelson

But Mr Mandelson warned that although political obstacles to membership had been overcome, the economic picture remained "troubling".

"I think we may well see a referendum next year but I think the economic jury is still out," he said.

"Ironically, it used to be the economic advantages which people could see, but the politics firmly against. We're now seeing the politics moving in favour of the euro but the economic convergence is still troubling."

He added that reports of divisions between the Prime Minister and the Chancellor over the issue had been exaggerated.

Position shift

Mr Brown has authorised supporters to begin talking about the prospect of Britain joining the single currency before the next election, the Sunday Telegraph disclosed.

It says that in private conversations he has expressed confidence that his five economic tests for membership are close to being met.

Byers 'will not be sacked' over referendum comments

In April Mr Brown insisted there would be no "short-cut" to joining the euro.

A deadline of June 2003 had been set for assessing whether the tests have been met.

Speculation that Mr Brown was ready to change his stance came after Transport Secretary Stephen Byers said a referendum would be held next year.

Downing Street said he would not be sacked after his off-the-record comments were made public.

Appearing on BBC's Newsnight last week Tony Blair said a referendum could be "getting close" and that the issue would be put to the public.

I think Gordon Brown, Tony Blair, Charlie Kennedy and I are all saying there will be a referendum next year

Kenneth Clarke

Mr Blair's comments were made after a private poll suggested that a referendum on the euro could be won by the 'Yes' camp.

Tory former chancellor Kenneth Clarke said he did not believe Mr Brown would prove an obstacle to joining the euro.

"I think he is in favour of the single currency," he told BBC's Breakfast with Frost.

Tories unchanged

"I think Gordon Brown, Tony Blair, Charlie Kennedy and I are all saying there will be a referendum next year and we will be asking people to join the single currency if the economic conditions have come right by then."

Tory leader Iain Duncan Smith said his party remained firmly opposed to the single currency.

"When the euro was launched in the New Year we were very explicit about why we believe it would be wrong for Britain to join - both for economic and political reasons, constitutional reasons," he told BBC1's On the Record.

"We have said that again in the last few days and whenever it arises."