Trade could be boosted by up to 50 per cent if Britain abandoned the pound, one of the chancellor's key background assessments has predicted.

Research on the impact of the euro suggested there would be an increase in trade within a range of between five per cent and 50 per cent.

It also predicted that Britain's position as Europe's biggest trader with the US "is likely to persist" and there would be no loss of business in non-European markets.

UK output is predicted to rise by between 4.5 per cent and 9.25 per cent if Britain signs up to the single currency.

However, as with much of the debate, there is a warning to temper the good news.

The study warns of "substantial uncertainties and risks" in the Treasury's estimates - particularly on a repeat of the ERM disaster.

"Benefits would be critically dependent on sustaining convergence of the UK economy with the euro area, as well as the absence of any short to medium-term misalignments in the sterling-euro entry," said the Treasury.

Inefficient businesses could also suffer once Britain has joined the single currency, the report warned.

"Entry into EMU would offer UK industry potential opportunities as well as challenges," said the assessment.

"The removal of the exchange rate between the UK and the euro area would reduce a barrier to doing business across a huge market.

"As a result, cross-border trade and investment between the UK and the euro area could rise.

"Over time, the level of competition in EU industry and markets might increase.

"Strong, competitive business sectors would prosper and find new opportunities to expand; weaker industries, however, would have to adapt to an environment of increased competition."