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The chancellor has insisted the UK economy is not in danger of returning to the dark days of the 1970s.

Speaking tonight at his first Mansion House speech in the City, Alistair Darling stated Britain was on firm ground.

"I have seen reports suggesting yesterday's inflation figures show we are returning to the days of the 70s," Mr Darling said.

"They are wrong, both in the nature of the problems we face and also in the scale. Today's inflation must be tackled. We cannot be complacent.

"But in comparison to the 1970s when it reached over 26 per cent, it remains low. Even in 1991, it was still at eight per cent."

He added a major change today was that inflation – now at 3.3 per cent – was driven by foreign influences, not domestic pressures.

The chancellor went on to call on greater wage constraint in the private and public sectors to hold back rising prices.

However, Mr Darling did warn the economy is heading through a rocky period.

"Times are tough. It will take time for these global difficulties to work through. But our economy will continue to grow," he stated.

"Independent forecasters expect UK inflation to fall back next year. Employment is at a record high. Many order books are full… Our economy is flexible and resilient. "

Turning to the credit crunch and international financial instability, Mr Darling promised to look at ways of restoring confidence in the UK mortgage market and financial services.

"Northern Rock tested our own system of financial regulation," he said.

"There were no easy answers to its problems. But we took the necessary steps to protect savers and wider financial stability.

He added: "I believe that our proportionate, principles based approach to regulation – and the single regulator model that has been widely copied since we put it in place a decade ago - remains the right one for our future.

"As I have said before, the answer is not more regulation, but regulation that is more effective."

Responding to the speech, Richard Saunders, chief executive of the Investment Management Association, said: "The chancellor has rightly recognised that special measures are needed to restore consumer and investor confidence in the financial system. Bank customers need confidence that the money they deposit in banks and building societies is safe and banks have a duty towards customers - without whom they would not exist.

"The special resolution regime to allow authorities to address failing banks is also welcome. The government’s objective is to ensure that bank failures do not threaten the system, not to ensure that banks do not fail. The proposed regime will give customers confidence that their deposits and assets will remain safe in the event of a bank going out of business.

"Now that these measures have been proposed we urge thegovernment to implement them quickly. Not to do so would postpone the recovery of confidence in the system."

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