Darling warning over pay rises

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Mr Darling, who is due to deliver his first annual Mansion House speech to the City, said it would be "disastrous" for Britain if the country became locked in a 1970s-style wages-prices spiral.

With rising world food and fuel prices pushing up the official inflation rate to 3.3%, he acknowledged that the country was facing a "difficult" year.

But he said it would be a mistake for workers to try to compensate by pushing for big pay awards.

"If you get yourself into a position where every penny extra you get through pay rises is eaten up through price rises, through inflation, then we will get into precisely the problems Britain had in the 1970s, the 1980s, and even the early 1990s, when inflation was at very high levels," he told the BBC Radio 4 Today programme.

"We have got to be vigilant in relation to all pay - public and private sector pay alike - because if we get ourselves into that spiral it will take years to get out of it.

"We cannot get ourselves into a position where we allow inflation to take hold because we get into inflationary pay rises. That would be disastrous, not just for the country but for each and every one of us.

"We cannot, cannot, allow inflation to become embedded in this country as we allowed to happen in the 1970s, 1980s, and 1990s."

Mr Darling insisted that the pay deal announced on Tuesday night for the Shell tanker drivers was a one-off, reflecting the "peculiar" circumstances of that industry.

While he accepted that growth would slow this year, he insisted there were "very good reasons to be optimistic" about the outlook for the economy.