Both the Treasury and the Bank of England have warned that early entry to the European single currency could stoke inflation and push up interest rates.

The warnings are expected to reinforce the governments caution on the issue despite pressure from some industry leaders for entry.

Bank of England governor, Eddie George, warned that the pound's high value was a "real obstacle to early entry into the euro" with sterling having to fall significantly before membership of the European single currency can be contemplated - a move that could pose inflationary risks.

Gordon Brown's chief economic adviser, Ed Balls, stepped into the debate warning that: "Ant short term attempt to manipulate the exchange rate...would put both the inflation rate and...wider stability at risk."

The warnings come as inflation has risen from two per cent in April to 2.4 per cent last month, dashing business hopes of further interest rate cuts.