Since our October forecast events have conspired to worsen the outlook for the UK and global economy. Concerns about the solvency of banks across the globe have continued, and in some cases intensified. The inter-linkages of the global economy continue to be highlighted as the list of economies slipping into recession grows, even for those who have not suffered the direct shock of a crisis in their domestic banking system. Indeed what started as a problem in securities markets related to sub-prime lending in the US mortgage market has evolved into the near collapse of the global banking system. The UK has enjoyed the fruits of the rapid growth of financial intermediation over the past decade. However, such gains are being sharply reversed, as discussed on pp. 4–8 of this Review. The problem of access to credit for households and non-financial corporations still persists and, if anything, the situation seems to have deteriorated. As discussed on pp. 71–2 of this Review, Bank of England data suggest that lending by banks to households and businesses contracted in the final quarter of last year, even though £37 billion (2.6 per cent of money GDP) of new capital was injected into two major UK banking groups, effectively nationalising one of them (Royal Bank of Scotland).