Chancellor Gordon Brown has faced down critics in the City and the trade unions by insisting he would not relax financial disciplines in response to threatened strikes and soaring oil prices.
Economists have warned that Mr Brown is in danger of breaking his "golden rule" because of worsening Treasury finances.
And he faces the prospect of 300,000 civil servants walking out on November 5 in protest at plans to cut around 100,000 jobs.
But he insists: "We will do nothing that puts at risk the short term or long term stability of the economy. There will be no relaxation of our discipline."
Speaking to a conference of the left-of-centre thinktank Compass, Mr Brown made clear that he wants a "progressive" Labour manifesto for the upcoming General Election, with radical policies to extend skills training and childcare, reinvigorate local government and complete the reform of the House of Lords.
And - in what may have been a shot across the bows of Labour campaign co-ordinator Alan Milburn - he sent out a warning about the limitations of the market, which he said would always prove both less equitable and more expensive than the public sector in delivering essential services.
Mr Brown told the London conference that he had taken a succession of "tough choices" since 1997 and could not afford to be less strict now, given the fragile state of the world economy.
Some City experts have suggested he will have to abandon his golden rule of borrowing only for investment over the economic cycle.
But Mr Brown said: "With oil prices at over 50 dollars a barrel, having doubled in two years, and a slowdown in growth in all the major countries, I will continue to take the necessary action to entrench stability and promote the conditions for growth.
"We will meet our fiscal rules in this cycle and the next. There will be no return to inflationary wage demands."
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