Thousands of British jobs could be lost if the UK enters the euro at the wrong exchange rate, a study has warned.

Citing the risk to jobs and firms as "significant", the report warned that a careful assessment of the exact exchange rate at the time of transition must take place before membership.

The analysis said that entering at too high a rate could see a repeat of the ERM fiasco.

The Treasury study points to "significant costs in terms of unemployment and bankruptcies" if the calculations were wrong.

But once inside Britain could find that a greater level of exchange rate stability emerges.

"Overall exchange rate volatility would tend to be lower if the UK were to join EMU. But this result varies in different contexts," says the technical assessment.

"The reduction in volatility is greatest in situations where, if sterling were independent, it would be moving against an unchanged euro-US dollar rate.

"In these circumstances, fixing the sterling-euro rate not only eliminates volatility against the euro, but also eliminates volatility against other currencies as well."

The suggested exchange rate for joining the European single currency values the euro at 75 to 85 pence, while the current exchange rate values the euro at around 72 pence. Sterling dropped on the foreign exchange markets as a result.