The often sluggish French economy is now worth £70billion more than the UK's, following the dramatic fall of sterling against the euro.

It slips into fifth place behind the US, Japan, Germany and China - all had larger outputs than the UK in the final quarter of last year, according to new figures from the National Institute of Economic and Social Research (NIESR).

Projections also suggest that France's gross domestic product (GDP) will grow by 2 per cent in 2008, compared to 1.9 per cent in Britain.

Radical labour reforms proposed by President Nicolas Sarkozy to boost productivity are set to further challenge the UK economy as it struggles with the impact of the "credit crunch" sparked by the American subprime home loans crisis.