Alistair Darling will next month announce a package of measures designed to kickstart bank lending, amid signs of a worsening recession and fears that good businesses are being forced under by a shortage of credit.
The chancellor will announce new guarantees over bank lending to business, but officials concede it is proving tough to devise a scheme that will give banks incentives to start lending again.
January will be a decisive month for Mr Darling. The £37bn publicly funded bank recapitalisation in October may have saved the banks but it has so far failed to get credit flowing again. He knows he is running out of time.