Page last updated at 08:16 GMT, Wednesday, 18 June 2008 09:16 UK

Economy is slowing, says Darling

Alistair Darling
Alistair Darling will make his first Mansion House speech later

Chancellor Alistair Darling has said that there is "no doubt" the UK economy is slowing and has warned it will be a "difficult year" ahead.

Rising food and fuel prices were hitting consumers, he told the BBC.

Speaking a day after consumer inflation jumped to the highest level in 10 years, he also called for restraint in pay demands.

Mr Darling said it would be "disastrous" if the UK "allowed inflation to take hold".

"There is no doubt our economy is slowing down," he told the BBC's Today programme.

The government has predicted that the UK economy will grow by between 1.75% and 2.25% this year.

FROM THE TODAY PROGRAMME

The chancellor has forecast that the economy will grow by between 2.5% and 3% next year.

However, economists are predicting the rate of growth will be closer to 1.3%.

Asked about the difference in the two forecasts, Mr Darling said he would be looking again at his growth figures in the pre-Budget report in the autumn.

'Vigilant'

The governor of the Bank of England warned on Tuesday that inflation would top 4% this year before dropping back as the economy slows.

In order to combat inflationary pressures, the chancellor said workers would have to be realistic in their pay demands.

"We have got to be vigilant in relation to all pay settlements, public and private," Mr Darling told Radio 4's Today programme.

"If we get back into that [inflationary] spiral, it will take years to get out of it," he said.

It could even herald a return to the high level of inflation experienced in the 1970s and 1980s, he said.

The chancellor blamed the rise in inflation on global factors pushing up the price of oil and foodstuffs.

But he said countries needed to work together to tackle the problem.

"You need to make sure you don't allow inflation to become entrenched here at home and you also need to make sure we work together in relation to oil and food [prices]", he said.

The chancellor will further examine the state of the economy when he delivers his first Mansion House speech to the City of London later.


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