Firms will have to be restrained when deciding on wage increases for their staff, the chancellor has warned.
Speaking on Radio 4's Today programme, Alistair Darling expressed his concerns that high pay rises could further damage the economy by putting further upward pressure on inflation.
He said: "We have got to be vigilant in relation to all pay settlements, public and private.
"If we get back into that [inflationary] spiral, it will take years to get out of it."
A situation like this would be "disastrous" for the UK, he added.
The Governor of the Bank of England, Mervyn King, has already warned that inflation could reach as high as four per cent before it begins to fall.
Yesterday, the Confederation of British Industry predicted that while the UK should avoid a recession, firms must not talk themselves into "unnecessary trouble" in terms of the economic climate.
