The Bank of England has recently come under criticism from other lending institutions, such as CitiFinancial, that is being too optimistic about the current credit crunch that exists in the UK economy.

According to industry experts, the downturn in the economy, due to the increase in costs, is causing job losses in all sectors of the economy and is likely to worsen, before it starts to improve.

In the Stability Report recently published by the Bank of England, it was stated that the bank officials feel that other banks are being overly pessimistic about the losses stemming from US mortgage meltdown. It goes on to state while there remain downside risks, the most likely path ahead is that confidence and risk appetite will return gradually in the coming months and that the reports of massive losses are being exaggerated.

This leads to predictions that as many as 15,000 estate agents would lose their jobs during 2008, with many more job cuts to follow within the next five years. As increased costs make it harder for companies to make profit and cause them to endure severe cash shortages, the whole economy is placed under a great financial strain.

March, this year was the worst month for banks. Consumer spending is at an all time low and banks are having difficulty raising capital. Leisure spending has decreased in recent months with pubs, restaurants and hotels reporting lower revenues. Everything points to a recession, with people spending less, knowing that there is probably worse news to come.

The Bank of England actually blames some of the problems in the financial industry on the bonus structure offered by many banks in an effort to entice more customers. He claims that many lenders are experiencing problems because of their practices of offering huge remunerations to homebuyers and requiring lower down payments for mortgages.

Mervyn King, the governor of the Bank of England, called on all banks to revise policies of offering huge compensation packages to new employees because they were not in the long run in the interest of the banks themselves.

The Bank of England does have a plan to try to ease the pain of the credit crunch by pledging emergency money to stop the credit markets from seizing up. However, other banks that took advantage of this offer had to pay rates higher than the base rates and the demand for the cash was less than the bank anticipated.

In December 2007, there were two rate decreases in the rates that banks charge each other for borrowing leading analysts to believe that the short-term plan may be working. However, as the credit crunch continues, critics are claiming that the Bank of England is applauding its own efforts a little bit too early.

A surge in mortgage loan defaults coupled up with bad debts, will increase the pressure experienced by financial institutions. As a result many banks have had to absorb these losses, which cuts into their cash flow and costing them billions of dollars.

Banks fear that a downturn similar to what has occurred in the US estate industry will occur in the UK and that they will need cash to cover their losses. This is there is loud criticism of the plan by the Bank of England to exchange about £50 billion of its risky mortgage assets for easy-to-liquidate government debt. The critics say that while this plan will reduce major problems in borrowing between banks, it will not bring an end to the credit crunch.

The Bank of England however, continues to be pleased with the plan it has put in place in spite of increasing problems in the US estate industry. The main reason for this is that in the US mortgage holders can default on their loans, but in the UK consumers are still personally responsible for the mortgages they take out.

The bank does state that if the problem turns out be more protracted than it believes it will, it will take a look at extensive rate cuts as the Federal Reserve in the US has been doing.

John Gieve, The Deputy Minister of Official Stability for the Bank of England, said: " The credit markets are starting to make an upward swing from being dangerously low in the summer of 2007 to becoming temporarily too high relative to fundamentals."