Britain is facing a "stark economic reality" Nick Clegg has warned, with inflation and unemployment rates on the rise while the debt crisis gripping the eurozone threatens to deepen.
Speaking on Wednesday morning the deputy prime minister said there was "little margin for error" on economic decisions amid fragile global markets.
"The reality we face is stark; there is now little margin for error. But that does not mean we are helpless. It does not mean we intend to sit on our hands while the global economy falters."
"Despite the darkening global picture, despite the need to stay on top of the deficit, we’ll do whatever it takes to return our economy to health," he said.
His comments came as unemployment figures revealed the biggest spike in two years - with a rise of 80,000 in the three months to July taking the total jobless to 2.51m. It also came a day after consumer inflation rose to 4.5 per cent with utility bills and clothing costs rising sharply.
"We are still feeling the pressure," Clegg said. "This week we’ve heard that inflation is still high at 4.5 per cent. And, in the last hour, we’ve been told unemployment has risen.
Labour leader Ed Miliband demanded to know whether the British economy was "still out of the danger zone" during prime minister's questions on Wednesday.
Cameron responded saying the government wanted to get people back to work.
The dire outlook for the UK comes as eurozone leaders struggle to contain a spiralling debt crisis.
Clegg reiterated comments by Christine Lagarde, the new head of the IMF, that the global economy was entering "a dangerous new phase", as two French banks were downgraded by Moody's credit rating because of their exposure to Greek debt.
The move comes hours ahead of crisis talks between French president Nicolas Sarkozy, German Chancellor Angela Merkel and Greek Prime Minister George Papandreou, over fears Athens could default on its debt.
German politicians have suggested that Greece may have to leave the eurozone, but analysts have warned against the move.
European Commission President Jose Manuel Barroso has said the European Union is facing a fight for its survival.
"This is a fight for the economic and political future of Europe. This is a fight for what Europe represents in the world. This is a fight for European integration itself," he told the European Parliament in Strasbourg on Wednesday, adding it was imperative that EU countries demonstrated "joint resolve".
"It is not enough to make plans. It is action that counts," he said.
China and the US have also stepped in to urge eurozone leaders to tackle the crisis, in a sign that international fears over further economic catastrophe are growing.
US president Barack Obama said a "more effective co-ordinated fiscal policy" was needed while Chinese Premier Wen Jiabao said Europe must stop the crisis from growing.
Speaking at the World Economic Forum on Wednesday Wen said: "Developed countries must take responsible fiscal and monetary policies. What is most important now is to prevent the further spread of the sovereign debt crisis in Europe.”
Analysts at JP Morgan also said there is "a growing sense that the crisis is reaching a climax" on Tuesday, and that the "endgame on EMU [European Monetary Union] is approaching fast", the Daily Telegraph reported.