George Osborne has admitted that Britain's economic recovery will be "choppy", but insisted there is light at the end of the tunnel.
The Chancellor said there are grounds for "cautious optimism" over the country's prospects, despite figures showing CPI inflation still above target at 3.1 per cent.
But he also warned the situation could deteriorate quickly if the Government goes into "denial" over the scale of its deficit, and does not follow through on tough spending curbs.
Speaking at Bloomberg's London offices, Mr Osborne said: "Here in Britain we can start to be cautiously optimistic about the economic situation.
He added: "So I agree with Mervyn King when he said last week that we are likely to face a choppy recovery.
"To expect a smoother ride after the biggest economic crisis of our lifetimes, and with the debt problems this Government has inherited, would be asking too much."
