An important milestone has been reached on the road to the London Summit, with a successful meeting of the Finance Ministers and Central Bank Governors of the G20 countries at Horsham in Southern England. The communiqué issued on Saturday afternoon showed progress on the main issues on the agenda for the summit on 2nd April, with agreement on action to restore global growth and restore lending by the world’s banks.

The first point in the communiqué was a ringing endorsement of the importance of maintaining free trade, with a commitment to fight 'all forms of protectionism'. Fiscal expansion was providing vital support for growth and jobs, the communiqué said, pledging to deliver 'the scale of sustained effort necessary to restore growth'. The central bankers said they would maintain expansionary monetary policies, consistent with price stability.

Developing and emerging countries were promised several measures to help them cope with the reversal in international capital flows. Reform of the international financial institutions was also included, with measures to strengthen the voice and representation of the emerging and developing countries, tied to firm deadlines. There was agreement on the need to increase the resources of the International Monetary Fund, as well as support for other international institutions.

Several measures were recommended to strengthen the financial system, including appropriate regulation and oversight of all 'systemically important financial institutions, markets and instruments', which would cover hedge funds and derivatives. Financial regulations should be reassessed to ensure they dampen rather than amplify economic cycles, with strengthened international cooperation on financial regulation. Regulation of credit rating agencies was part of a series of proposals to ensure greater transparency in the financial sector.

A special annex to the communiqué was also published setting out a common framework for restoring bank lending by capital injections, deposit protection, liquidity support and dealing with bad loans. 'Given the interconnectedness of the global financial system,' the annex said, 'international cooperation is important to maximise the effectiveness of these measures and reject financial protectionism.'

Alistair Darling, the UK Chancellor of the Exchequer who chaired the meeting, said afterwards that much of the discussion had been about restoring confidence, and that coordinated action would 'establish momentum to do that.' Speaking to reporters, he said that countries must do what was right for their circumstances, but it was important that the meeting had agreed on the need 'to do whatever it takes, for as long as is necessary – country by country.'

'We were seized by the fact that there was a sense of urgency,' he added. Tim Geithner, the US Treasury Secretary, said  there had been a `clear commitment to do what’s necessary, to keep at it to get the economy on track.'

Earlier on Saturday, UK Prime Minister Gordon Brown and German Chancellor Angela Merkel held a press conference after their meeting in Downing Street, expressing optimism about the prospects for the London Summit. Both welcomed Friday’s announcement by the Swiss government that ahead of the summit, it had joined other offshore financial centres in adopting standards for tax cooperation and exchange of information set by the Organisation for Economic Cooperation and Development.