In its Financial Stability report, the Bank claimed that “conditions should improve” and that losses may have been “overstated”, but Citigroup remains sceptical.

Managing director for Citigroup’s securitised products division, Birgit Specht, said that Citi’s research backed up the part of the Bank’s report that covers residential mortgage-backed securities. Citigroup predicts that implied losses for this division will be less than 3.6 per cent for the UK market.

But other aspects of the review did not take into account the whole picture, according to Citi economist Michael Saunders. The Financial Times reports him as saying that: “At its heart, the financial crisis has been triggered by the mix of surging private debts, booming asset prices, strong private spending and plunging private savings.”

Despite the launch of the new Bank of England special liquidity scheme, many experts believe that the effects of the credit crunch are far from over. Although liquidity in the UK financial sector should be improved as a result of the move, there are fears that the scheme – which will allow banks to swap risky mortgage-based assets with Government bonds – is not enough, and that it will not have an impact in the near future.

But the National Institute of Economic and Social Research believes: “The Bank of England liquidity scheme is not going to reduce the risk associated with mortgages and people who expect it to have a substantial impact on mortgage rates are likely to be disappointed.”

The Bank of England review explains that “Rising US sub-prime defaults were the trigger for a broad-based repricing of risk and deleveraging in credit markets,” but is optimistic that, despite the fact that the problem is still evidently hampering lenders, pressure will start to ease. It hopes that confidence will return and that inter-bank lending will resume, which would have a significant impact on the banking and mortgage sectors.

The review was welcomed by the National Association of Estate Agents. “There has been much ‘doom and gloom’ reported over the past few months, especially with regards to the global credit crunch. However, to hear that there is light at the end of the tunnel should come as a massive boost to consumer confidence and is the crutch that both consumers and organisations very much need,” said the company’s chief executive, Peter Bolton King. However, chief international economist at Capital Economics, has warned clients that: “for the wider economies, particularly the US and UK, the worst is still to come.”

©Fair Investment Company Ltd