The Bank England has signalled that the worst of the credit crisis could be over. In its twice-quarterly Financial Stability Report, John Grieve, deputy governor, said “the most likely path ahead is that confidence and risk appetite will return gradually in the coming months.”  

The report said that the credit markets “overstate the losses that will ultimately be felt by the financial system and the economy as a whole.”  The Bank of England said the credit crisis has left investors too pessimistic about asset prices, raising the prospect of respite for Britain’s financial system in coming months.

“The pricing of risk in credit markets seems to have swung from being unsustainably low last summer to being temporarily too high relative to fundamentals,” said Grieve.