Alistair Darling's shocking admission: British economy is at a 60-year low - and it's only going to get worse

The Chancellor warned that it will be 'more profound and long lasting' than anyone expected.

And in an admission of Labour's failure to manage the downturn, he conceded that voters had been left 'p***** off'.

Frank and gloomy: Chancellor Alistair Darling

The Chancellor said the country was on the brink of 'arguably the worst' financial conditions for 60 years.

His grave diagnosis comes in the same week as a warning from a Bank of England policymaker that two million people could be unemployed by Christmas. It will cause significant damage to Gordon Brown's hopes of staging a political fightback with a series of measures designed to help families meet soaring mortgage, food and fuel costs.

The remarks are also likely to add to the unease within the Cabinet that the Prime Minister has been doomed by the downturn and will find it impossible to regain support in the country.

Mr Darling admits he had no idea how serious the credit crunch would become.

'I think it's going to be more profound and long-lasting than people thought,' he says in an interview with the Guardian.

He goes on: 'We've got our work cut out. This coming 12 months will be the most difficult 12 months the Labour Party has had in a generation, quite frankly.

'We've got to rediscover that zeal which won three elections, and that is a huge problem for us at the moment. People are p***** off with us.

'We really have to make our minds up - are we ready to try and persuade this country to support us for another term? Because the next 12 months are critical. It's still there to play for.'

Mr Darling has used similar language before, in an interview several weeks ago, but the timing of this latest intervention is significant.

However in an interview with Sky News today, Mr Darling sought to tone down his earlier comments, stressing that the 'fundamentals' of the UK economy remained strong despite the 'unique set of circumstances' globally.

'I think it is important that Government ministers and particularly me as Chancellor level with people.

'I explained that what is happening to every country in the world, ours included, is that we have a credit crunch the like of which we have not seen for generations.

'We have that at the same time as oil and food prices going up. But I am also clear that the fundamentals of our economy are strong.'

He said the difference between his today and previous governments was that his government was 'taking action to help people'.

Mr Brown hopes to return to the political fray next week to unveil an economic rescue package designed to show voters he is trying to ease the burden of rising bills.

Now they are more likely to believe that a defeatist attitude has set in at the Treasury.

Mr Darling also predicted that there will be no leadership challenge-to the Prime Minister and also suggested Mr Brown is not planning an imminent Cabinet reshuffle.

'You can't be chopping and changing people that often,' he said.

'I mean, undoubtedly at some stage before the end of the Parliament he will want to do a reshuffle, but I'm not expecting one imminently. I do not think there will be a reshuffle.'

The Chancellor's remarks about the economy - in an interview conducted over two days at his family croft on the Isle of Lewis - will delight the Tories.

They will seize on them as further proof that Labour under Mr Brown has lost its right to claim the mantle of guardian of the economy.

David Cameron will also welcome Mr Darling's admission that the Premier has so far struggled to connect with voters. Questioned on whether Mr Brown can communicate Labour's mission, the Chancellor said: 'Yes, I do think he can. I do think he will.'

Asked why Brown has not done so, Mr Darling faltered as he said: 'Er, well. Well, it's always difficult, you know ... But Gordon, in September, up to party conference, has got the opportunity to do that. And he will do that. It's absolutely imperative.'

The interview was designed to show the Chancellor in a more personal light after a year in which he shouldered much of the criticism over the collapse of Northern Rock and the loss of disks containing details of half the population.

He said nothing about the tensions with No 10 soon after he took over as Chancellor, when he was reportedly rebuffed by Mr Brown after he pointed out the dangers of abolishing the 10p tax rate - a move that triggered one of the Premier's worst crises so far.