Britain is still topping the European inward investment league despite being outside the eurozone, according to a new report.

Research from accountants Ernst and Young has been seized upon by opponents of the single currency as evidence that Britain does not need to abandon the pound.

Ahead of the Cabinet decision on the Treasury's five economic tests for entry, euro supporters have argued that UK industry would suffer as a result of foreign firms not wanting to incur extra trading costs by basing their plants in Britain, with long-term economic trends confirming this.

However, in the short-run at least, the latest figures show that the country's share of inward investment within the EU increased from 26 per cent to 28 per cent between 2001 and 2002.

Fears that business would shift resources to the continent had proved to be "damp squib", the report said.

"Whilst there are undoubted financial benefits for the countries within the single currency these appear to be counter-balanced in inward investment terms by concerns over reductions in growth rates in major markets, probably in part due to the loss of some independent national economic levers such as interest rates and exchange rates."

And with the rising rate of the euro on foreign exchange markets this could continue to be the case, the authors concluded.

"The recent euro appreciation if sustained, could exacerbate this," they forecast.

"The UK, and London in particular, still continue to punch well above their weight in inward investment terms in Europe."

The Conservatives, who oppose the currency "in principle", said that the report "makes a mockery" of the supposed benefits of entry.

"The number of inward investment projects into Britain held up far better than the number going into the eurozone," shadow chancellor Michael Howard said.

"The biggest deterrent to inward investment is the fear of economic instability.

"If Britain joined the euro, we would no longer be able to set interest rates on the basis of economic conditions in the UK. That would put investment and the jobs that depend on it at risk."

George Eustice, campaign director of the "No" campaign against euro entry, said: "Britain will continue to be attractive to investors while it runs a stable economy outside the euro.

"What businesses locating in Britain want more than anything else is a clear decision on the euro. If the tests are not met now, then they will not be met in a year or two's time."

But the interpretation of the Ernst and Young figures were challenged by pro-euro group Britain in Europe.

BiE chief economist Philippe Legrain said that over a broader period the figures showed the UK's proportion of investment was declining.

"These figures confirm that Britain's share of European foreign investment projects has fallen sharply, from 28 per cent before the launch of the euro in 1999 to 19 per cent last year," he told ePolitix.com.

"Britain is now clinging on to its lead in Europe by the slenderest of threads. It is vital that the government does not put this position at risk by ruling out the euro for this parliament."

He added that many of the contracts that were being transferred to EU accession states in Eastern Europe should not "comfort anti-Europeans".

"All the applicant countries are committed to joining the euro as soon as they meet the entry criteria," he said.

"Investors locating in Eastern Europe do so in the belief that they will soon be able to serve the whole euro-zone market from this cheap location without facing exchange rate risks.

"Britain cannot compete with Eastern Europe on labour costs but could do so on eurozone market access."