The annual report on standards and quality in education has pointed to continuing problems with teacher recruitment and retention and warns the situation could begin to have a negative impact on pupils' exam performance.

The report was released by the out-going Ofsted chief Mike Tomlinson.

"The government's targets for 2002 are still within reach, but this year's figures are a clear warning that the task should not be underestimated," he said.

He also warned that 100,000 children were missing from the state school system.