The light at then end of the credit crunch crisis could be sight after positive statements from both the Bank of England and the US Federal Reserve.

The Bank of England, headed by Governor Mervyn King, gave a clear signal that the worst is over for the crisis when it said banks had over-exaggerated the extent of their losses and debt from the sub-prime debacle.

In its twice-yearly Financial Stability Report, the Bank said that, in their assessment of the value of their investments, they had taken a far too negative view. As this became clear, bargain hunting investors would start buying up these assets again, restarting liquidity in the credit markets in the coming months.

The Bank's upbeat assessment came as the Fed signalled last night's quarter point interest rate cut would now be followed by a pause in the rate cutting focus.

Philip Shaw, economist at Investec, said: 'I suspect the Bank of England is right. The credit markets will start to respond to the actions it has taken. It will take a while to unwind completely, but we are fairly hopeful of a visible improvement fairly soon.

City economists, although slightly cautious over the statements, generally surmised that that the outlook for the global banking sector was at last starting to look better.