Darling calls for lower pay deals

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Acknowledging the year ahead would be "difficult", the Chancellor warned that people should not expect their salaries to rise as fast as prices.

His comments, echoing those of the Governor of the Bank of England last week, come after inflation soared to 3.3%. There are fears that it could even hit 4%.

Mr Darling appealed to private companies not to reinforce inflation with higher pay increases.

"From the boardroom to everyone, public and private alike, the last thing any of us want is to get into the situation in the 1970s and 1980s, for example, where you simply lost out because whatever your pay increase it was simply eaten up by the prices in the shops," he told BBC1's Andrew Marr Show.

Last Tuesday, Bank of England Governor Mervyn King was forced to write a letter to Mr Darling explaining why inflation had risen more than one percentage point over the 2% target.

Mr Darling insisted that inflation was being fuelled by global pressures on food and oil but warned against getting into a vicious circle in the UK.

"Pay awards in both the public and private sector have got to be consistent with our inflation target of 2%," he said.

Asked whether he agreed with the Governor's prediction that people would have to endure below-inflation pay increases in the coming year, Mr Darling said: "Yes."

He went on to acknowledge: "It will be difficult, it will be tough."