Sky's £125m buyout of Amstrad will face scrutiny from the Office of Fair Trading (OFT), regulators have announced.

The City watchdog will probe whether the deal will substantially reduce competition in the set-top box market. Amstrad already builds 30 per cent of Sky boxes.

The OFT has the power to trigger a full inquiry from the Competition Commission. The same process launched the ongoing investigation into Sky's attempted purchase of a stake in broadcasting rival ITV earlier this year.

When the Amstrad deal was announced at the end of July, shares in fellow Sky contractor Pace Micro nosedived. ®

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