Lloyds was next cab off the rank with a pledge from Chancellor Alistair Darling that the Government will insure up to 300 billion of toxic investments held by Lloyds Banking Group. And the quid pro quo? The expectation that the banks provide extra loans worth 40 billion pounds to struggling home buyers and businesses. The mind-boggling figures have created a kind of numbers fatigue in Britain as few can fathom the enormity of the interventions. Inevitably, too, there are codas to the stories that describe continuing executive excess. Indeed, just as RBS laid bare its dire results late on Thursday, it emerged that Sir Fred Goodwin, the bank's former CEO, has begun drawing a pension of 650,000 pounds a year - at the age of 50. Widely blamed for the bank's difficulties - and asked to step down by the Government before it would step in - the pot from which he draws his pension is worth 16 million pounds. All this amid predictions that the bank's imminent restructure could result in 20,000 jobs lost.

For the Briton struggling with a mortgage - or victim of forced redundancy - this kind of news is hard to stomach: the British welfare system, nipped and tucked over a decade and more, can offer about 60 a week in unemployment benefits. More people can no longer afford to pay their mortgages and it is reported that somebody loses a home in Britain every seven minutes. Few west European nations, with the exception of Iceland and, perhaps, Spain, has seen its financial situation wane so quickly and so brutally as Britain - and signs of fear and uncertainty are not restricted to economic charts. They are there, in the real economy, visible everywhere. Take a walk up any high street in London, even in the most affluent north around Hampstead and Primrose Hill or the leafy southern suburbs around Richmond, and a forest of signs don't just advertise rock-bottom discounts, but "closing down" sales. "To Let" signs are replacing the insignia of the local clothing boutique, while real estate agents' windows, once smug with bloated prices, can't contain burgeoning photographs of property for sale and rent.

British house prices tracked by Nationwide, Britain's largest building society, have fallen 17.6% in the past year and despite some evidence from agents and house builders that inquiries have increased as prices fell and interest rates were cut, short-term predictions remain gloomy. Service industries such as taxi companies are struggling, bars and restaurants are scrambling for custom - one high-end London restaurant has asked diners to pay what they think the meal is worth - while newspapers, magazines and websites abound with articles on "beating the recession". Abdul, an Afghan-born father of two, works for a north London minicab company which has about 200 self-employed drivers. He says that calls from clients in The City, London's steel and glass financial district, which was previously the company's major source of work, have dropped by more than half: "It is very quiet. We are all working longer shifts and more days ... and still it is not the same."

Everywhere, retailers are trying to find new ways to harness the marketing value of the new austerity and to survive: Marks and Spencers, the iconic British retail giant, recently placed what have been dubbed the first "credit crunch rings" onto their website. A wedding band encrusted in diamonds and an engagement ring set with a huge, eye-watering solitaire - but made of platinum-sprayed tin alloy and well-cut glass - and costing 18 pounds for the two. Some food and drink sectors seem to be the only ones offering a glimmer of good news: frozen food sales are reporting a bounce as have several fast-food chains, including Kentucky Fried Chicken, which has flagged the creation of 9000 new jobs in Britain in an expansion plan worth 150million. KFC chief executive Martin Shuker said this week that the recession had helped the company increase market share as it fed consumers' burgeoning appetite for cheaper food. "There aren't many companies that can be so positive in this market. We are delighted to be able to announce this significant investment," he said. The dramatic turn in Britain's fortunes is particularly stark because the nation seemed to have it so good for so long.

Tory prime minister Margaret Thatcher began the economic renaissance more than 20 years ago, breaking up and privatising the country's ailing manufacturing industries and deregulating the financial sector. Then, New Labour and Tony Blair continued reform of the financial sector, maintaining a light hand on regulation and slashing capital gains taxes. For a decade and a half, Britain metamorphosed into a new, glistening, post-industrial, globalised economy, one largely driven by a massive financial sector. In London, which became home to the world's private equity and hedge fund companies, confidence hit the sky and bonuses doubled, tripled quadrupled to a dizzying, annual 8.5 billion pounds at the height of the boom. Everyone, from the restaurants that fed the bankers to the boutiques that dressed them, felt rich. House prices boomed, people felt buoyant - and borrowed more on their assets. Then, the British real estate bubble popped, hitting the residential and then the commercial sector. It was only 18 months ago that Northern Rock, a mid-market mortgage lender, foundered and needed nationalisation, and most believed it would end there. But then there was a run on the banks. Recession hit formally in the fourth quarter last year and the crisis that at first seemed confined to London is now everywhere.

According to British Prime Minister Gordon Brown, now facing another dramatic slump in the polls, the challenge faced by Britain is the same challenge facing every other nation: encouraging banks to start lending again. Announcing that Northern Rock was poised to revive its home loan arm, Mr Brown insisted this week that the Government's guarantee of banks' bad debt would help restore confidence and reboot lending stymied by the credit squeeze.

But according to Mervyn King, the governor of the Bank of England, who gave evidence to the Treasury Select Committee on Thursday, not only is it almost "impossible to say" just how much capital will be needed in the end to shore up the ailing banking system, but the nation was already so deep in debt before the crisis hit that it was making any move towards recovery more difficult. Speaking before a panel of senior MPs, he ticked off the Labour Government by saying debt levels meant that Britain's fiscal stimulus package had to be smaller than other countries. "I do think public debt matters. We get to this crisis with levels of public borrowing that were too high and that made it difficult," he said. Mr King warned that Britain had yet to ascertain "what is really on the balance sheets of the major banks", a process he warned could take many more months. Loading

He also made clear the Bank of England's plan to embark on quantitative easing - often called printing money - was an additional boost to the economy given that interest rates are set at a record low of 1%. "The problem at present is not that the amount of money in the economy is growing too rapidly, threatening a big inflationary surge. It is that the amount of money in the economy is growing too slowly," he said. The central bank is due to take its next decision on interest rates next Thursday. Until then, Britons will be hanging on to their hats - and RBS boss Sir Fred Goodwin says he will hang on to his pension.

