Chancellor Alistair Darling told the Trades Union Congress (TUC) Britain will survive the credit crunch.
He faced a disillusioned conference, which responded well to his calls for a more responsible bonus culture but heckled him on his public sector pay claims.
Mr Darling told delegates inflation could not become entrenched as it did previously: “That’s why, in the private and public sectors, pay rises must be consistent with our inflation target.”
“Otherwise every penny in pay rises will be quickly swallowed up by higher inflation,” he warned.
Some workers in offices in London have already felt the effect of tightening economic growth.
However, predictions by the Centre for Economic Business Research, which estimated the City could be facing up to 10,000 redundancies have yet to be proved accurate.
Overall, the unemployment rate for the three months to June is down 0.1 per cent from the previous quarter, according to national statistics.