Bank profits will pay down debt - Darling

LONDON (Reuters) - Britain will use any profit from selling its stakes in the banking sector to reduce government debt, Chancellor Alistair Darling said on Wednesday.

The Labour government has taken sizeable stakes in several banks to prop them up during the financial crisis. It forecasts government borrowing to leap to a record 175 billion pounds this year.

"I will continue to do whatever is necessary to ensure sustainable public finances, reducing borrowing and debt -- while continuing to invest in public services and infrastructure," Darling told a business audience in London.

"So we will use the proceeds from selling our shareholdings in the banks to cut government debt."

It is unclear when the government might start selling its stakes in the banks.

Labour is under pressure to explain further how it intends to reduce government debt -- which is forecast to spike to more than 90 percent of GDP on a Maastricht Treaty basis -- especially following warnings of a credit rating downgrade.

Using any profit from banking shares could reduce the need to restrain spending or hike taxes in the years ahead.

Darling also said the threat of inflation was emerging once again, stemming from rising oil prices.

"While inflation has not been the major worry over the last year, global oil prices, up by over 25 dollars a barrel in three months, are again a growing concern," he said.