It has been a week of cautious optimism about the credit squeeze. The Federal Reserve cut interest rates by only 25 basis points and, rather than vituperation for its failure to take sufficiently aggressive action, it was met by speculation of an end to rate cuts. The Bank of England argued that the market prices of asset-backed bonds now overstate likely losses on subprime mortgages. But the slump in housing may be long, deep or both, and that is one reason why it is too early to be upbeat about either the banks or the real economy.

There has been bad news about housing on both sides of the Atlantic. The rate of fall in the volatile but probably accurate Case-Shiller index of house prices in 20 US cities accelerated to 12.7 per cent in the year to February 2008. In the UK, both house price indices produced by large mortgage lenders showed their first year-on-year falls, while mortgage approvals for new house purchases, which have some power to predict future moves in house prices, fell to their lowest level since the current data series began.