Mr Darling used a business forum event in Leeds to drive home his message that Britons needed to rein in pay demands for the good of the economy.

And he said he still expected voters would reward Labour at the next General Election, despite asking them to accept two percent pay increases while food and fuel bills rocket up by six to eight percent.

The Bank of England has announced that inflation has now reached 3.3 percent overall - and warned that it is likely to get as high as four percent before it goes down, double the optimum rate of two percent.

"We're going through a period of uncertainty, times are tough," said Mr Darling. "But there is an optimism that we can get through this and that the economy will continue to grow.

"If we get ourselves into the situation we've got ourselves into in the past, where in the 70s 80s and early 1990s every penny you get by way of an wage increase is eaten up by prices rising faster than that you will lose out.

"If we allow home grown inflation to be entrenched as we did - people will remember prices rising one year in the 1970s by 27 percent - if we allow that to happen again then everyone will lose out, especially those on the lowest incomes because inflation hits them hardest.

"We've got to think long term because we've been here before, we've made mistakes before, and we can't afford to repeat them again."

Mr Darling accepted people were "anxious" about prices going up, and said that he may well again defer putting a further 2p on fuel duty if oil prices remain high in October.

"Every time people go to the filling station they can see the difference, even a year ago it cost a lot less to fill up your car, that's why it's important that we take action both here at home and internationally to reduce these pressures and so avoid the problem where we get prices going up and up and up."

The Chancellor was in Leeds to hear from senior businessmen on how the worsening economy is affecting their industry.

A representative from Asda warned that consumers were now spending £8 on average less than last year on 'discretionary' items - but said that middle-market supermarkets such as his and Morrisons were now winning customers away from high-end names like Sainsbury's and Waitrose.

John Cleland, a senior banking and finance lawyer at Pinsent Masons, said the construction industry in Leeds was having real problems, with some firms defaulting on bank loans and work now grinding to a halt. The retail sector, he said, was also feeling the strain.

But other businessmen said that the Yorkshire manufacturing industry was doing better than expected, particularly in terms of exports, and the financial services industry was also fairing well.

Kevin O'Connor, chairman of the Leeds Financial Services Initiative and managing partner of business advisors Baker Tilly, said he told the Chancellor that the tax system was penalising Yorkshire's entrepreneurs.

He said: "I told him he should bring some stability to the tax system, particularly for entrepreneurial businesses. I told him that the tax changes that had taken place of late like taper relief had just lost him the confidence and trust of the entrepreneurial community.

"Less is more, particularly in terms of taxation. He needs to bring some certainty, bring some stability, bring some trust back."