UBS, the giant Swiss bank, has suggested that serious problems with Ireland's creditworthiness on international markets could hurt Britain's prospects and seriously dent sterling.
The bank, one of the world's largest private wealth managers, was commenting after last week's decision by ratings agency Standard & Poor's (S&P) to cut Ireland's credit rating another notch to AA, from AA+.
The bank said the rating cut was mainly explained by the size of Ireland's financial support for its banks.
"The recent downgrade of S&P does not bode well for the UK as S&P cited the government support for the financial sector as a key weakness in Ireland. Within Europe, only the UK is in a similar predicament and any spillover effects from Ireland would weigh on sterling," said the bank in a note for its private clients.
S&P's decision was based on fresh figures showing the scale of losses at Anglo Irish Bank. The agency said this meant it had to raise its estimate for the possible cost of fixing Ireland's banks.
Moody's, another ratings agency, will shortly issue its latest view on the Irish economy and it could reduce Ireland's rating by several notches.
Ireland's deteriorating credit position has weighed on the euro several times in recent months. Comments on the possibility of an intervention by the IMF a few months ago pushed the currency down against the dollar.
The S&P downgrade knocked the currency down 1% last week before it staged a quick recovery.