First, let me turn to my assessment of the international economy.

Because of better macroeconomic policy decisions and continuing, deeper globalisation, over the last ten years:

* Global growth has increased from 3 to 4 per cent.
* Inflation has fallen from 22 to 4 per cent.
* Living standards have risen sharply with 300 million people across the world lifted out of poverty.

But a crisis which began, as America itself has said, in the US housing market has seen these benign conditions undermined.

The problems in the sub-prime housing market rapidly spread to the entire global financial system, causing a disastrous tightening in credit and undermining confidence.

The Bank of England estimates that global bank losses could eventually reach 3 trillion dollars, as big as the economies of Italy and Spain put together.

Global shares have fallen by 50 per cent since May.

Mr Speaker, all this happened, too, at a time when the global economy was already suffering from unprecedented increases in energy, food and commodity prices.

These increases pushed up inflation everywhere and added to the pressure on businesses and households.

In the UK, inflation, though now falling, is still at 4.5 per cent.

In the Euro area inflation has been above the central bank target since mid 2007.

In Spain, inflation peaked at 5.3 per cent. In the US at 5.5 per cent.

Mr Speaker, the result has been a sharp reduction in growth across the world.

The Euro area has been in recession since April.

In Japan and Germany, GDP has already shrunk by about 1 per cent in the last six months.

And economic output is falling in the United States. Growth in China and India too has slowed sharply.

This is an unprecedented global crisis.

But the World Bank and other institutions are confident that the global economy will recover strongly – predicting it will double in size over the next two decades, helping to spread prosperity across the world.

Mr Speaker the root of today’s problems are failings in the global financial system.

The banking system is the heart of all economies.

Financial markets affect everyone’s daily life. If they fail to function properly, the impact is felt right across our economy and by every one of us.

So restoring and maintaining financial stability is absolutely crucial.