Thanks for replies!
I ended up chipping off the loose plaster and flaking paint, sealing with dilute PVA , easifilling the area and then papering with a thick lining paper, and am going to get someone in to try and track down the source of any dampness that might have caused it in the first place.
Sorry, should have said - it's a party wall, in the alcove to the left of a blocked up chimney.
Though it is a lower ground floor room, there is a small yard to the exterior wall, with stairs up to street level. It is in the corner that the stairs are at to the external wall - here's a pic...
We've just moved into a terraced mid-1800s house and have begun redecorating.
When removing some wallpaper from a lower-ground floor room, the paper pulled away a layer of paint, and in some places some plaster too.
On closer inspection it looked like some areas of the plaster had blown, and...