UPDATE 1-Credit crunch losses may be half market estimates-BoE

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By Matt Falloon

LONDON, May 1 (Reuters) - The scale of losses and the economic fallout from the global credit crunch may not be as bad as feared and subprime losses could end up costing less than half market forecasts, the Bank of England said on Thursday.

The central bank is still concerned about the consequences of the credit crisis but Deputy Governor John Gieve said conditions could stabilise soon.

The crisis has frozen money markets and rattled consumers around the world, pushing the global economy to the edge of a sharp slowdown after banks lost confidence in each other due to defaults on low-end mortgages in the United States.

If the fallout from the crisis turns out not to be as drastic as many fear, the implications for global interest rate, and fiscal policy will be significant.

Current market estimates of subprime mortgage losses amount to nearly $400 billion and the IMF has said the wider cost to the financial sector could rise to $1 trillion.

"All of them are potentially significant overestimates of the losses within the wider economy associated with the financial market crisis," the BoE said in its twice-yearly Financial Stability Report, estimating actual losses could be closer to $170 billion.

"Using a mark-to-market approach to value illiquid securities could significantly exaggerate the scale of losses that financial institutions might ultimately occur. It will exaggerate to an even greater extent the potential damage to the real economy."