Cabinet tensions over the single currency are reported to be increasing in the wake of a damning official report on EU economic performance.

A study by the European Commission was expected to paint a mixed picture of the UK economy, pointing to strong performance compared to continental economies but expressing concern over whether consumer confidence can be maintained.

The survey is also expected to continue pointing to a gloomy future for the key German economy, where the government is currently struggling to gain support for a limited programme of economic reform.

Uncertainty over the degree of convergence between Britain and the eurozone economies is thought to have added to the difficulties of a quick move on membership of the single currency.

Amid the continuing concerns, reports have suggested that the chancellor is increasingly opposed to entering into the euro immediately and favours putting off membership in tomorrow's Budget.

But Tony Blair is believed to have opposed making such an announcement at a time when widening splits in Europe and public antipathy towards the continent could complicate the decision.

Downing Street has confirmed that the two men have spent "a fair amount of time" discussing the content of the Budget, despite the prime minister's preoccupation with events in Iraq.

Ahead of Wednesday's key speech by Gordon Brown the Commission report was expected to offer some good news, with a "broadly positive" assessment of the UK economy.

Noting that buoyant consumer spending has remained one of the few bright spots in the economy, the report is expected to add that there are "appreciable downside risks".

"Among these is the possibility of an abrupt slowdown in the growth of household consumption from recent high levels, as households begin to adjust to lower gross wealth as a result of the recent equity market slump."