Upbeat Brown tells City: We'll fight and win

Gordon Brown also predicted that the Square Mile will fight back from the recession and enjoy a new age of prosperity.

He dropped a strong hint that he expects a third runway at Heathrow to be part of the capital's future, emphasising that a decision on the plan will be made next month.

His markedly upbeat tone came at the monthly No 10 press conference where he was challenged about Chancellor Alistair Darling's gloomy admission this week that Britain may suffer a worse slump than other countries because of the sheer size and importance of the City.

Mr Brown said: "The financial sector in Britain is big... and obviously if you have a financial recession those countries with big financial sectors are going to be affected.

"But my view is that our financial sector is capable of reviving, capable of doing well in the future, and we will shortly publish our views on how we can retain a world class sector in this country."

Downing Street confirmed that the Paper would be issued next year and would set out strategies to strengthen the City and retain its share of business. "Yes there have been difficulties but yes, also, I'm confident about the future," added Mr Brown, who said new customers from the Far East would help recover the City's coffers.

The Premier set out to change his image of dour gloom to one of optimism.

"Britain can and must be a beacon of hope and opportunity for the future," he said.

"With our fighting spirit and our can-do attitude, I am confident that we can meet all the challenges ahead."

Officials confirmed that an expansion of government-backed lending to struggling firms is set to be unveiled in the New Year. It could open the taps to billions of pounds of extra lending through high street banks to companies suffering from the credit crunch.

Although £37 billion was pumped into the banks as fresh capital in October to save them from going bust, lending to small firms has failed to improve.

One option is for a new fund based on the existing £1 billion scheme for loans to small firms, in which 75 per cent of the bank loan is made using Government money. It mean that taxpayers take on three quarters of the risk if the company folds without paying it back.

The Prime Minister played down fears about sterling's plunge against the euro - which has reached near-parity. "Of course there is volatility in every economy in the world and of course exchange rates are going to go up and down," he said.