Delivering an election campaign gift to the Government's opponents and ammunition to pro-European Tories, the threat threw the Government on to the defensive on the very day that the Prime Minister cut the turf at the Welsh site of Europe's biggest investment project.
Speaking in Tokyo, the president of Toyota, Hiroshi Okuda, said the company would shift its investment to continental Europe if Britain did not join a single currency.
"Rather than decreasing the amount, we will leave investments as they are now," he said. "But if we are to make fresh investments, we would prefer to make them in continental Europe rather than Britain."
That would dash hopes of a further expansion to Toyota's pounds 1bn car plant in Derbyshire before the end of the decade. The factory had been the favourite location to build a third model, creating up to 1,000 extra jobs and lifting production to 350,000 cars a year.
Toyota is not the first big overseas investor in Britain to warn publicly about the consequences of failing to sign up to economic and monetary union.
But the warning triggered a powerful backlash from an all-party political alliance.
Shadow Chancellor Gordon Brown said: "This is the first sign of industry reacting to the Tories' infighting and disunity over Europe. The Tories are now putting British jobs at risk and 3.5 million jobs depend on Europe."
Liberal Democrat Treasury spokesman Malcolm Bruce said: "The biggest single disincentive to inward investment is uncertainty, and the biggest source of uncertainty in Britain is the British government."
Edwina Currie, the former Tory minister whose Derbyshire South constituency includes a Toyota factory, with a second one under construction, said 10,000 local jobs were at risk: "The company has told me privately of their anxieties and now the president of Toyota has blasted the issue into the open."
But Ian Lang, President of the Board of Trade, said: "Only yesterday, another Japanese businessman expressed concern that a single currency would not be `dependable'. There are lots of views on these matters.
"Japanese investment comes to Britain because protectionist Europe offers no welcome while Britain opened its doors to it, welcomed it, and helped it to prosper here."
The Toyota warning came as the Tories were staging a press conference hailing the record amount of inward investment. It was timed to coincide with John Major joining executives from the Korean electronics manufacturer LG to cut the first turf on a 250-acre site for a factory - part of a pounds 1.7bn investment that will bring more than 6,000 jobs to Newport, in south Wales. Mr Major said the LG investment decision was a "massive vote of confidence in the future of the UK".
Two weeks ago, Siemens of Germany, which is building a pounds 1.1bn microchip plant on north Tyneside, said it would not have committed itself to the investment had it known that Britain might stay out of a single currency. Jurgen Gehrels, chief executive of Siemens plc, said: "If it had been clear that Britain would be out of a single currency at the time we invested in north Tyneside, that decision would have gone another way."
Toyota's operations in Britain are not at risk, nor is the second phase of investment already announced. But Mr Okuda confirmed that Toyota's future strategy "will change", depending on whether Britain joins EMU.Reuse content