BBC Political Correspondent Nicholas Jones: Labour will deliver manifesto committments in 1999

Mr Mandelson and Paymaster General Geoffrey Robinson quit the government in the same day, but the prime minister insisted this would not throw the government's programme off track.

He said 1999 would be the year in which people would start to "feel the difference" made by a Labour administration.

Mr Blair - who is currently on holiday in the Seychelles - said: "Of course from time to time, the government like any, will suffer knocks, and the media will revel in them.

"But they come and they go. What stays is the sense of national purpose. What stays is the manifesto on which the government was elected, a programme for reform and renewal.

"A programme which, line by line, we are putting in place."

Hard times

Mr Blair warned the country may face tougher economic times in the year to come.

He said it is "inevitable" because of the economic situation they inherited and the financial crisis that has cut growth forecasts the world over.

But he added: "Because of the decisions we took on entering office we are in better shape to weather any storms and to emerge stronger from them".

On crime, he promised the toughest-ever attack on youth offending and more work "strengthening" the justice system.

He said welfare reforms presented a huge task, but this was being carried out "relatively peacefully", confounding those who say the government have gone soft on reform.

In Scotland and Wales, he said Labour reforms offered a way between the status quo and separation.

And, with the European single currency just days away, he said Britain's national economic interest will decide whether the UK signs up at a later date.