The Chancellor, speaking in the House of Commons yesterday, added that the downgrade of 12 UK banks by Moody’s did not reflect a deterioration of the banking system, but the ring-fencing recommended by the Vickers report.

“It is recognition of the success of this government’s efforts to reform banking,” he said – and extracting commitments from all the high street banks to increase SME lending was part of this guarantee.

Osborne also urged eurozone nations to increase the size of the €440bn bailout fund, and that a 1% rise in interest rates would cost the UK £10bn in extra mortgage costs. He reiterated his claim that Britain will not be a part of any permanent eurozone bail-out fund.

On Dexia, the troubled Belgian bank currently being bailed out by a number of eurozone countries, the Chancellor said that stress tests for European banks were “not nearly tough enough”.

And he said the extra £75bn of quantitative easing (QE) we a direct result of the ongoing Greek debt crisis.

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Britain “could not be immune from what was happening on our doorstep”, he added.