The French president recently proposed the London visit as a means of defusing angst over last week's appointment of Frenchman Michel Barnier to the important internal market portfolio inside the European Commission.

The City of London greeted the job announcement with dismay. But subsequent comments from Mr Sarkozy that he had "out-manoeuvred" Mr Brown and that the appointment was a "triumph" for French ideas on financial regulation only added fuel to the fire and served to enrage Downing Street.

Fears that further public comments during Friday's visit could serve to aggravate the dispute appear to be the reason behind the cancellation, with British civil servants suggesting it was London that put the brakes on the idea.

"He [Sarkozy] offered to come to London and we said ‘Thanks, but no thanks,'" said a senior UK government figure, reports the Times.

The two leaders will meet in Brussels next week at a EU summit.

Domestic politics

Earlier this week, prominent voices within the City of London hit out at the comments made by the French president that suggested Mr Barnier's appointment would usher in a new era of French economic ideas.

Angela Knight, head of the British Bankers' Association, said on Wednesday that Mr Sarkozy "must surely recognise that he has undermined the EU with his statements and put a question mark over the impartiality of his nominated commissioner."

However, others have remarked that the French chief's controversial comments are destined primarily for a domestic audience where talk of the need to curtail unfettered markets is a known vote winner.

France heads into local elections next March, with Mr Sarkozy already firmly in election mode.

And Mr Barnier himself has adopted a far more conciliatory tone. In an article in Friday's La Tribune, the incoming commissioner insists a strong City of London is in the interests of Europe as a whole.

He adds that he hopes to visit the British financial heartland "if possible before the end of the year."