Chancellor Alistair Darling today announced the launch of a new working group to help the UK's ailing mortgage market.
Sir James Crosby, deputy chairman of the Financial Services Authority, will work with lenders, the Bank of England and Treasury to "reopen" a mortgage market increasingly constrained by the global credit crunch.
Mr Darling said in an interview on BBC Radio 4's Today programme: "We need to do everything we possibly can to help people through what is undoubtedly a difficult period.
"That means making sure we support the housing market but also making sure we support the wider economy, keeping people in work."
The International Monetary Fund's growth forecasts, released today, paint an increasingly gloomy economic picture.
The UK's economy is forecast to expand by 1.6% this year and in 2009 - lower than the 1.75-2.25% predicted by the Chancellor in last month's Budget.
But Mr Darling said: "The IMF has downrated every country's growth forecast in the light of what's been happening in the world economy.
"However, they have lowered their expectations in relation to us by less than other countries."
Mr Darling insisted he stood by the growth forecast he had made in the Budget and said he remained "optimistic".
Mr Darling said the IMF still predicted growth in the UK and added: "We do have a very strong economy, it has proved remarkably resilient over the years."
He said he believed the UK would get through a "pretty unprecedented shock to the economic system".
But, he said: "We cannot be complacent about these things. We are going through a difficult time, but I do believe that we are far better prepared than we have ever been in the past."
The housing market, one of the key drivers of growth in the UK, has come under increasing pressure due to problems in the mortgage sector.
Figures from the Council of Mortgage Lenders (CML), released yesterday, showed that the number of mortgages taken out fell for the fourth month in a row during February to just 49,000.
Meanwhile, the number of mortgages available continued to fall, with Abbey striking a further blow for hard-pressed first-time buyers with the announcement that it is pulling out of the 100% mortgage market.
Mr Darling said: "I think we can do more, working with the industry, to try and reopen the mortgage market.
"The basic problem you have got at the moment is the banks and the building societies have found funding harder to raise because if what is happening in the financial markets generally."
Sir James, he said, would look to see "whether or not we can get more money into the system" and would report by the summer.
The Chancellor said a slowdown in the housing market was "inevitable" given the rapid rise in prices over recent years.
Despite the economic turbulence and a growing mood of unrest within the Labour Party over the abolition of the 10p income tax rate, Mr Darling insisted he still "relished" his job.
"Of course we are going through difficult times, but if I stand back from this and ask myself 'why are we in government, what are we trying to achieve?'
"Well, we are trying to ensure that we have a strong and stable economy, getting people into work and keeping them in work, lifting children out of poverty, helping people who 10 years ago struggled to bring up families.
"Those are all things that are absolutely essential. Those are the things that get me into work every morning."
Richard Lambert, director general of the Confederation of British Industry (CBI), said he expected the Bank of England to relax its rules on lending to inject extra liquidity into the financial market.
He told Today: "The Bank is thinking about other steps, which means basically lending money to banks on longer terms than it normally does and against the security of a wider range of assets than it would normally accept as collateral.
"It is fiendishly difficult for it to do, because it has to get the money in the right place, in the right hands, but that is what it is working on."
He supported the moves, adding: "The system is blocked, it needs unblocking."Reuse content