Digby Jones said he would warn business leaders at a CBI dinner in Birmingham on Monday that fuel bills will cost companies �5bn more this winter.

Oil costs are up 75% in 18 months, he says, with electricity prices up �5bn.

However, Mr Jones told the BBC that there was very little risk that these increases would cause a recession.

"What it will mean is a cut in the profits of manufacturing," he told Radio 4's Today programme "That means fewer jobs, less tax and fewer schools and hospitals."

Under pressure

I am worried that rising costs will take the wind out of the sails of the manufacturing recovery Digby Jones, CBI director general

At the CBI's national manufacturing dinner, MrJones said he will urge the government to avoid moves that would lead to further price increases.

Ministers, he will say, should take account of the pressure firms are under when setting the levels of carbon emission targets and consider a "fair carbon allocation" for key industries such as electricity and manufacturing.

He will tell businessmen that employers have been reporting average price rises for electricity and gas of some 40% over the last year alone.

And he will report that the cost of essential metals such as steel have soared by more than 55% in the last year.

"I am worried that rising costs will take the wind out of the sails of the manufacturing recovery," Mr Jones will tell the gathering.

"Earlier in the year - when global demand was stronger - companies were able to raise prices and pass on some costs, but this may become more difficult if demand weakens."

Minor impact

A report on Monday from accountants Ernst & Young was less alarmist about the impact of rising oil prices.

Should crude oil remain around the $50 mark, then 0.5% would be knocked off UK growth next year, Ernst & Young said.

This would still leave the economy expanding at a comfortable rate, it said, in contrast with the 1970s when a similar type of shock would have knocked the UK economy backwards.

Official figures show that while the UK is becoming more dependent on imported oil as North Sea reserves dwindle, British industry is becoming more fuel-efficient.

The Department of Trade and Industry estimates that the amount of oil it takes to generate �1m in economic output fell from 279.4 tonnes in 1994 to 234.7 tonnes last year.

Meanwhile, Digby Jones will also appeal to the government to resist potentially damaging EU regulations on working time and employment of temporary agency staff.