The forecast from British Steel accompanied the disclosure that a further 1,600 of its workers could soon lose their jobs, bringing the total for the year to 3,000 redundancies from its 47,000 strong workforce.
However,the news failed to dent the upbeat assessment given by Mr Blair in his Mansion House speech, which concentrated on the economy, rather than on the more traditional foreign affairs.
The Government is privately worried that its central theme of economic stability is falling on deaf ears. That led Mr Blair to declare: "Stability is my message tonight. It may not be sexy enough for the headline writers, but in my view, stability is a sexy thing."
Mr Blair also snatched the claim to be the natural party of business from the Tories, whose policies had been discredited by boom and bust, he said. "Yes, we are a centre-left government, with centre-left priorities. But we are delivering on the economy, delivering on low inflation, delivering for business the stability it needs.
"I see my party, the Labour Party, as the natural party of economic competence today. We know what we have to do, and we know how to do it."
Mr Blair insisted the Government was "not the slightest bit complacent" about job losses, but added: "We are firm. We need hard-headed realism here, a sense of perspective about the present, and real determination about the future."
He added: "Nothing matters more to me than our ability to manage the economy." Inflation was on target, balance sheets of the corporate sector were "in good shape" and there was no need to cut public expenditure or to raise taxes.
Dismissing as "nonsense" Tory claims that the downturn would cause a "black hole" in Government's finances, Mr Blair said a significant margin had been built into the figures, allowing the Government to stick to its spending plans.
But British Steel - still regarded as a bellwether of British industry - warned that it may have to order a complete shutdown of its four main plants in South Wales and the north-east over Christmas.
Profits slumped by 25 cent in the first half of 1998 and a combination of the strong pound, collapsing prices, faltering demand and cheap imports are likely push the company into a loss for the full year.
Sir Brian Moffat, the chairman, contested Chancellor Gordon Brown's forecast that the economy would grow by 1 to 1.5 per cent next year.
Sir Brian said that the manufacturing industry was already in recession and that the rest of the economy was likely to follow suit. "We will be lucky if we are not in a minus situation next year,'' he said.
His comments follow those last week of the chief executive of British Telecom, Sir Peter Bonfield, who said that growth next year was likely to slow to between zero and one per cent.
British Steel axed 2,000 jobs last year and a further 1,400 in the first half of this year.
The company also warned that compulsory redundancies were now likely. Until now, the reductions have been achieved by voluntary redundancy, natural wastage and early retirement. The Tory spokesman on the economy, Francis Maude, accused Mr Blair of complacency. He said that instead of dismissing businesses' concerns about the economy, Mr Blair needed to "get a grip on the situation.
"The Government should put a halt to the juggernaut of extra regulation and higher taxes that is now making it more expensive to employ people," Mr Maude said.Reuse content