Mr Speaker, I now turn to the detail of the economic forecast.

These forecast are made against a background of sharply deteriorating conditions across the world.

The IMF is forecasting a year-long fall in output next year across all advanced economies, the first time this will have happened since 1945.

And the UK is no exception.

Mr Speaker, UK GDP contracted by 0.5 per cent in the three months to September.

And growth this year is forecast to be ¾ per cent, which reflects a further fall in output in the fourth quarter of this year.

The IMF is forecasting that the US, Germany, Japan, France, Italy – as well as the UK – will all contract next year as a result of weak consumer spending and business investment.

I, too, am forecasting that output will continue to fall in the UK, for the first two quarters of next year.

But then, because of decisions taken in this Pre-Budget Report, I expect it to start to recover.

GDP growth for 2009 is forecast to be between –¾ per cent and –1 ¼ per cent.

Mr Speaker, inflation is forecast to come down sharply, reaching ½ per cent by the end of next year.

Lower commodity prices and lower interest rates, which boost incomes and help business profits, together with the fiscal reaction across the world, will also help.

As an open and flexible economy, the UK is well positioned to benefit from this recovery.

As a result, and as the world economy recovers from the credit crunch, the UK will begin to grow again.

So I am forecasting growth of between 1 ½ and 2 per cent in 2010.

In the years after that, the economy will continue to recover.

Trend output – or the productive potential of the economy – will initially fall.

But in future years, the economy will recover towards a rate of trend growth of around 2 ¾ per cent.

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Mr Speaker, every country in the world is facing the impact of this crisis on their own economy.

There is a growing international consensus, although unfortunately not in this House, that we must act now to protect people and to help pull our economies out of recession.

For there is a choice.

You can choose to walk away, let the recession take its course, adopting a sink or swim attitude, letting families go to wall.

This is the no action plan.

Or you could, as I have decided, as have governments of every shade around the world, to support businesses and families, by increasing borrowing, which will also reduce the impact and length of the recession.

I will do whatever it takes to support people through these difficult times.

That’s why my Pre-Budget Report today represents a substantial fiscal loosening – to help the economy now – with a £20bn fiscal stimulus between now and April 2010, around one per cent of GDP.

Before I describe the detail of how the Government will support people, let me turn to the fiscal framework which will help us ensure fiscal sustainability.

The Government introduced the Code for Fiscal Stability in 1998, committing itself to conducting fiscal policy in accordance with a clearly stated set of principles.

Our objectives are, and remain, to support the economy, to ensure medium-term sustainability and maintain public investment.

It meant we were able to more than triple public net investment, from 0.6 per cent of GDP in 1997 to over 2 per cent now.

At the same time, we cut the government debt, from 43 per cent of GDP in 1997 to 36 per cent in 2007.

Today I publish the Treasury’s assessment of the last economic cycle, which is supported by the independent National Audit Office.

It shows that the last cycle started in 1997 and finished in the second half of 2006. And this means that the Government met both its fiscal rules over the last cycle.

The average current budget balance, over the cycle, was 0.1 per cent of GDP.

But today Britain – like every other country in the world – faces an extraordinary global crisis, which means significantly lower tax revenues, both now and in the medium term.

In the current circumstances, to apply the rules in a rigid manner would be perverse and damaging.

We would have to take money out of the economy, making a difficult situation worse.

So it is right that in this Pre-Budget Report we do all we can to support the economy, but also ensure fiscal sustainability in the medium term.

Consistent with the Code for Fiscal Stability, the Government is setting a temporary operating rule.

It requires us to set policies to improve the cyclically-adjusted current budget each year, once the economy emerges from the downturn, so it reaches balance and debt is falling as a proportion of GDP once the global shocks have worked their way through the economy in full.

The fiscal projections set out in this Pre-Budget Report are consistent with returning to current balance and debt falling as a share of the economy by 2015/16.

They imply, as the economy emerges from downturn, an adjustment in the cyclically adjusted current balance of over 0.5 per cent a year from 2010/11.

Setting us on a path to deliver our objectives of supporting the economy, ensuring sustainability and maintaining public investment.

In addition, to increase transparency even more, I have asked the NAO to audit the Treasury’s analysis of the cyclical fiscal position.