In a report likely to reassure families struggling with soaring mortgage bills and falling house prices, the Bank's deputy governor, Sir John Gieve, said London's troubled money markets could soon recover from what is widely regarded as the worst crisis since the Great Depression.

He said: "The most likely path ahead is that confidence and risk appetite will return gradually in the coming months."

He indicated that Britain is now on a knife-edge. In one direction lies an eventual recovery; in the other six months or more of even deeper financial turmoil.

However, even if there is a swift recovery, it would take months, and possibly years, before many households feel the benefit, the Bank warned. It said highly-indebted families and buy-to-let investors are at significant risk in the coming months.

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It also refused to rule out further falls in house prices in the coming months, after Nationwide declared that home values are now falling year-on-year.

In its Financial Stability Report, published today, the Bank said that the mood had darkened to such a degree in the City and on Wall Street that the reality was now significantly brighter than many had feared.

It said the prices of the stricken financial investments at the heart of the crisis had fallen so dramatically that they may now represent a bargain for long-term investors.

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