An increasing number of City economists have said that the election of euro-sceptic Ian Duncan Smith as Conservative leader may actually increase the prospect that Britain will join the eurozone.

Until recently most analysts argued that victory for europhile Kenneth Clarke in the leadership contest would have encouraged the Labour government to step up its advocacy of monetary union.

With Mr Clarke as head of the Conservative party, the argument ran, there would be no heavyweight opponent of euro membership.

But a number of economists are now suggesting that Mr Duncan Smith may be almost as positive for prospects of monetary union.

"There is a perception that Mr Duncan Smith may be such a political weakling that he will not be viewed as an electoral threat by the Labour party," said Michael Hume, an economist at Lehman Brothers.

"This would reduce the potential cost of holding a referendum, since even if they lose, there would be no viable opposition party."

Philip Shaw, chief economist at Investec, said that Mr Duncan Smith's election could make it easier to convince the British people of the merits of eurozone membership.

"There is a possibility that under Mr Duncan Smith the Conservatives' clout in national debate will be diminished further by his appointment," he said. "This may leave a gap which the pro-euro Liberals may occupy."

So far there has been little reaction in the currency markets to Mr Duncan Smith's election.

With currency traders still shocked by the terrorist attacks on the US, sterling has been influenced mainly by moves in the dollar's exchange rate against the euro.

If more traders come to the view that eurozone membership is increasingly likely, the pound could fall against the euro, since most believe the government would not enter monetary union at the current uncompetitive level.

Some economists, however, were sceptical that the pound would be depressed by the election result in the coming weeks.

"It is true that the Tory leadership election may mean that Labour could lose a referendum without losing power," said Ray Attrill, director of research at the economic consultancy 4Cast. "However, I think the restraint for Tony Blair is coming not from the Conservatives but rather from Gordon Brown."