Crisis over? No, it's set to spread much wider

They are possibly right on subprime itself, but that is not going very far. There are indeed signs the market is freeing up, with Citigroup the other day lending private-equity guys several times the amount of money they needed at rock-bottom interest rates to persuade them to buy some debt the bank had been stuck with. UBS this week sold $22 billion (£11.2 billion) of loans for $15 billion to fund management group BlackRock. Both vendors sought to persuade the world that losing money on this vast scale was progress.

Perhaps it is, but it does not mean that we are out of the woods. A far more realistic assessment of where we are comes from Standard Chartered's Gerard Lyons who said, albeit with no claim to originality, that this is not the beginning of the end but rather the end of the beginning. What he means is that the first stage of the crisis may be past its peak, but we are about to embark on the second stage, where problems spread to the wider economy and in turn add to the challenges facing the financial sector — a sector that is in no condition to accept them.

This view is also strongly supported, he believes, by a close reading of last week's Financial Stability Report from the Bank of England, which generated all the optimistic headlines but was in fact far more downbeat and cautious when you delved into the detail.

The good news is that markets may be stabilising, but the bad news is the economy as a whole may be about to show signs of strain. If bankers think that signifies things are getting better, perhaps they should get out more.

This then is the context in which the Bank of England's monetary policy committee today has to decide what to do about interest rates, and one does not envy it. It is not its job to bail out the housing market, or to try to stem the tide of estate-agent closures, currently running at more than 150 a month according to property website Rightmove, and the danger of too rapid a reduction in rates is that it will appear to be doing just that.

It is the committee's job to keep inflation in check and, within that constraint, to keep the wider economy as stable as possible. So in that context, today's decision does not matter that much because there is little doubt about the general direction in which rates are headed, which is down, or about the prospect for further reductions as the year goes on. With the credit crunch rolling through the wider economy, we are going to need them.