ALONG with politicians, estate agents and journalists, bankers are least likely to elicit sympathy. So the fact that bankers have been hurting badly as a result of the turbulence in financial markets – one senior figure described it as the equivalent of a heart attack for the system – will not cause too much angst in the wider world.

But bankers can pass on their hurt to the rest of us and here lies the big question. What will the credit crisis, which shows few signs of abating, do to the economy?

You could be forgiven for thinking we have two parallel economic universes. The one in which ordinary consumers live is doing well. The other is in crisis, with banks unwilling to lend to each other, markets for certain assets having ground to a halt because of traders’ inability to price them and money-market interest rates surging.

If you want to know why this happened, let me quote from the just-released quarterly review from the Bank for International Settlements in Basle, the central bankers’ bank.

“Concerns about exposures to US mortgages cast a dark shadow over global financial markets during the period from end-May . . . with deepening losses on mortgage-related products spilling over to markets for other risky assets,” it wrote. “As uncertainty about the extent and distribution of these losses spread, investors fled to safe havens and liquidity demand surged. This caused a pronounced squeeze across major financial markets, prompting central banks around the globe to inject large amounts of liquidity.

“Triggered by declining confidence in the valuation of mortgage-related and structured credit products, spreads rose sharply . . . increasingly affecting higher-rated products and assets other than credit. The price of credit risk, a measure of investor appetite for credit-market exposure, jumped upwards, suggesting that a large part of the repricing was due to changes in investor sentiment towards risk.”

Three-month Libor (the British Bankers’ Association London interbank offered rate) was once a reliable guide to the level of base rates. Now it has become a symbol of money-market distress, climbing to a nine-year high of nearly 6.9%, more than a percentage point above the 5.75% rate set (and maintained at that level on Thursday) by the Bank of England’s monetary policy committee (MPC).

The Bank, which has been criticised during this crisis for its apparent aloofness, last week set out its rules of engagement. It increased the supply of liquidity to the markets and said it was ready to give more – an extra £4.4 billion for each of the next three weeks. But the aim was to keep overnight rates close to Bank rate, not cut the cost of three-month money, which did not “lie in a lack of central-bank liquidity”. The Bank is, in other words, no fairy godmother. There are some things central banks cannot do, such as make banks start lending to each other again, or restart trading in dormant markets.

The Bank’s actions did not stop the carping in the Square Mile and Canary Wharf. For anybody operating in the economy’s other parallel universe, however, the air of gloom and crisis is puzzling.

There is a neat symmetry in Britain’s manufacturers making whoopee, pun intended, even as bankers have been suffering. In recent years it has been the other way round, and if anybody had cause to complain about the Bank it was manufacturers.

Last week the EEF (formerly the Engineering Employers Federation) said industry was experiencing its best conditions since early 1995. “Manufacturers are enjoying a sustained period of growth and reaping the rewards of investment in skills and innovation,” said Steve Radley, its chief economist. “Gone are the days when a strong currency and increases in interest rates would have stopped companies in their tracks.”

The upbeat EEF survey was backed up by the latest purchasing managers’ index. Britain’s manufacturing sector is leaner, fitter and benefiting from the strength of the global economy, which is enjoying its best run for 35 years.

While it is pleasing to see manufacturing enjoying a mini-boom, though official figures convey a weaker picture than the surveys, this is not at the expense of services. The purchasing managers’ index for Britain’s service sector also rose last month. Taking manufacturing, construction and services together, the economy is growing at close to its best levels this year.

The housing market is also firm. The Halifax said prices rose 0.4% last month for an increase of 11.4% on a year ago. House-price inflation has been in double figures since March.

So while the banking system is seizing up, the real economy is doing nicely. That was why the MPC did not seriously contemplate a rate cut last week. But when do these parallel universes come together? When does the shoe drop on the real economy?

The OECD says it will drop on America quite soon. Jean-Philippe Cotis, its chief economist, says downside risks to the global economy have become “more ominous”, and he sees a sharp second-half slowdown in the American economy. France, Germany and Italy will grow more slowly than expected three months ago. But Britain is doing better. The OECD originally expected 2.7% growth this year; now it thinks it will be 3.1%.

This is the Bank’s dilemma. All financial crises are different, and I cannot recall one quite like this. In the nearest parallel, the autumn 1998 crisis brought about by the collapse of the Long Term Capital Management hedge fund, the MPC moved quickly to cut interest rates.

But back then the risks to UK growth were more tangible. Business confidence collapsed, normally a harbinger of recession. Oil prices were $11 a barrel rather than in the mid$70s. The rate cuts were from a high level of 7.5%.

The Bank will not want to go down that road again until it is sure the shoe is going to drop on the economy. “It is too soon to tell how far the disruption in financial markets will impair the availability of credit to companies and households,” it said last week.

There will undoubtedly be some effect on Britain from slower global growth, and the tougher credit conditions (and higher savings rates) that amount to a further tightening of monetary policy. But the MPC will need to be convinced that this goes significantly beyond the UK economic slowdown it was looking for anyway. By then, of course, it could be too late.

PS: George Osborne is a bright young man with a sharp wit, which he has used effectively against Gordon Brown. But is he promising things he cannot deliver?

Last week, to head off the charge that Tories would cut public services, he pledged to match Labour’s spending plans through to 2011, with increases of 2% a year in real terms. This is similar to Labour’s pledge 10 years ago.

Then, Brown and Tony Blair promised to stick to Ken Clarke’s tough Tory spending plans, and did. Labour’s plans for the next few years are not quite as tough as back then but represent a significant slowdown after the splurge.

But do they, as Osborne suggests, “create the headroom for sustainably lower taxes”? Brown is imposing lower limits on spending not because of a Damascene conversion to small government but to stop taxes rising further. As it is, government receipts will rise from 39.6% of gross domestic product to 40.4% in 2008-9, before levelling off.

Even then, according to the Institute for Fiscal Studies, it will be a close-run thing when it comes to whether the Treasury will meet its fiscal rules. One, the sustainable investment rule of keeping government debt below 40% of GDP, looks particularly vulnerable.

So talk of lower taxes looks premature. Unless, of course, Alistair Darling decides to help out his opponent in this autumn’s prebudget report by rewriting the fiscal rules.

david.smith@sunday-times.co.uk

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