Mandelson at centre of 'ditch the pound' row

It emerged that the Business Secretary told a Progress Group rally on Saturday that it was still his "goal" for Britain to adopt the euro.

Although he stressed that he was not agitating for an immediate change, his remarks took on greater significance this morning when the president of the European Commission claimed senior members of the Government were ready to move Britain into the euro-zone.

José Manuel Barroso said that in private conversations "the people who count in Britain" were thinking about joining. "I'm not going to break the confidentiality of certain conversations, but some British politicians have already told me, 'If we had the euro, we would have been better off'," he told French radio station RTL.

His comments caused shockwaves at Westminster because any move to adopt the euro was assumed to have vanished when Gordon Brown, a long-standing sceptic, became Prime Minister.

Suspicion soon fell on Lord Mandelson for giving Mr Barroso the impression that a rethink was on the cards - but a spokesman for the peer denied it was him.

In his remarks on Saturday, Lord Mandelson said: "I hold to the view that our aim, our goal, should be to enter the single currency." He added that the Government was "obviously not going to take on that challenge" during the current recession. Mr Barroso claimed the UK was now "closer than ever before". He boasted that the recession had weakened faith in the pound.

"I know that the majority in Britain are still opposed, but there is a period of consideration under way and the people who count in Britain are currently thinking about it," he said.

Downing Street said its position on the euro remained unchanged. After a titanic struggle with Tony Blair in Labour's first parliament, Mr Brown was credited with single handedly blocking entry to the euro-zone by erecting his famous "five tests" that would have to be met before Britain could join.

Current policy is that the Government "sees benefits in euro membership" but will not join unless the tests, such as convergence of interest rates and impact on employment, were met.

Lord Mandelson was the loudest Cabinet cheerleader for the euro in Tony Blair's day and organised a doomed attempt to soften up British opinion for dumping the pound.

But since Mr Brown gambled on inviting his old foe to join the Cabinet, they are said by Labour insiders to be on remarkably warm and trusting terms and have been mapping out plans for the next election together.

The value of sterling compared with other currencies has fallen during the credit crunch, and the Government has had to spend massively in recent months to try to support the economy.

A Downing Street spokesman said: "We have no comment on this. Our position on the euro is the same - it has not changed." Shadow foreign secretary William Hague said he would table questions about what talks had been held on the euro.