Darling warns of bumpy road ahead for economy

In his keynote speech to the Labour conference, the Chancellor insisted he was confident that recovery would come, thanks to the "talent and resilience of this country".

And Mr Darling also went out of his way to praise Gordon Brown's leadership during the turmoil, telling the conference hall in front of a pleased-looking Premier: "The true test of mettle comes when life is tough, not easy. These are very uncertain times. But one thing I am certain about is that we have the right Prime Minister, the right team, and the right policies to help our country through them."

But the Chancellor said the bad times were far from over, despite an injection of £100 billion into the banking system by the Bank of England.

"All this will take time to work its way through," he warned. "We are on a difficult road and there will, I'm afraid, be bumps along the way."

Mr Darling was given a warm standing ovation for his speech, which was delivered in his trademark low-key style to a packed hall in Manchester. His reception, despite some criticisms from Left-wing speakers, strengthened his position in a looming Cabinet reshuffle.

Earlier Mr Darling signalled that he will let borrowing rip by billions of pounds to keep the economy afloat - but left an ominous question mark over the possibility of long-term tax rises to pay it back.

He made clear there would be no big tax rises in this autumn's pre-Budget report because hitting firms and family budgets would risk damaging the economy further. Instead he indicated he would borrow freely to keep spending flowing. Experts were predicting that the Treasury would have to borrow some £90 billion this year. But the Chancellor served a warning that the money would have to be paid back. "The key thing to do is that when the economy slows down you support it," he said in a round of interviews. "But as I am going to make clear, in the medium term all governments have to live within their means."

Mr Darling's comments effectively ruled out the possible threat of big income tax rises in the spring. "This is not the time to be taking money out of the economy," he argued. "This is the time to support the economy. People are hard pressed at the moment, I can't really be clearer than that." The Chancellor was less clear about how the money would be repaid but did not rule out future tax rises. He said: "When times get better, you can reduce the amount of debt."

In his speech to conference, Mr Darling stressed the need to put stability first. He said he would not shrink from regulation wherever it is shown to be needed. "I can promise you that wherever weaknesses are found in the financial system, I will take steps to deal with it," he said.