A key report into teaching standards has revealed further improvements in the quality of teaching in England and Wales.

But the annual report on standards and quality in education also points 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.

"In last year's annual report I said that we cannot expect progress to be even, year on year. We should, however, remind ourselves of how far we have come: the Level Four figures for English and mathematics in 1996 were 57 and 54 per cent respectively," he said.

"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."

The report details steady improvements in the quality of education and the standards achieved by pupils.

It says that improvements in teaching have occurred alongside rising standards in pupils' attainment at all levels of education.

But the report also finds cause for concern at key stage three level - the early years of secondary education.

In this area it finds significant underachievement in seven per cent of schools and says there is a wide gap in attainment between girls and boys.

It also finds no improvement in behaviour - which is unsatisfactory in one school in 12.

Key stage three pupils are also seeing a deterioration in the match between staff and the subjects they teach and a fall in overall attendance levels - which have dropped to 90.9 per cent.

A dip in attitudes to learning amongst pupils aged 12 and 13 is also detailed by the report.

For the second year running, the report criticises the gap between schools which are performing well and those which are failing.

It also says that children from ethnic minorities are continuing to fall behind.

Whilst he identifies improvements in numeracy and literacy, Tomlinson says that schools need to pay more attention to arts, creative and practical subjects.

The report comes as the government introduces plans which will see schools with a strong performance being given new powers to take over failing schools.