The next Irish budget should not contain any tax cuts, the European Commission has told the Government.

In its annual Broad Economic Guidelines published this week, the Commission warns of inflationary pressures and delivers its bluntest yet policy warning to the Minister for Finance, Mr McCreevy.

The guidelines state: ".....a tight fiscal stance is required in Ireland to reduce the risk of overheating, namely in 1999, and such a stance should not be jeopardised by any further tax reductions."

The Commission's comments are underscored by inflation figures released on Thursday which showed an annual rate of 2.5 per cent - the highest since May 1995.

At the time of the devaluation of the pound in March the EU's Monetary Committee had made its approval conditional on assurances from Mr McCreevy that any unexpected exchequer revenues must be devoted to reducing the national debt.

The guidelines, which will be approved as the EU's broad economic strategy by the Cardiff summit in June, go one step further. They will mean that when, as agreed recently, Mr McCreevy comes to present the outlines of his budget strategy to fellow EU ministers in July, he will face tough questioning.

Until now Mr McCreevy has insisted that the process of reinforced multilateral monitoring of member states' economies agreed as part of the move to the single currency would not prevent him from delivering on electoral promises. That stepped up monitoring has led to much more country-specific guidelines.