UK credit conditions set to tighten further - BoE

By Christina Fincher and Raissa Kasolowsky

LONDON (Reuters) - The credit squeeze on households and businesses looks set to intensify as lenders grow increasingly nervous over the economic outlook, a survey by the Bank of England showed on Thursday.

The findings boosted expectations the central bank would cut interest rates as soon as next week, knocking the pound and lifting interest rate futures.

The Bank's quarterly credit survey, conducted Feb. 25 to March 19, showed lenders expected to reduce the availability of secured credit to households even more sharply in the second quarter of the year than in the first.

Unsecured credit availability was also expected to be reduced "somewhat further" over the coming three months.

"The survey suggests that there has been no improvement in conditions," said Philip Shaw, chief economist at Investec. "In fact, the situation has deteriorated further and that's consistent with the news over the past few days that mortgage lenders have been raising their rates and withdrawing products."

British mortgage lenders have withdrawn many of their best offers in recent weeks and some, including First Direct and the Co-operative, have withdrawn mortgage offers for new customers altogether.

DEFAULTS TO RISE

The BoE survey showed default rates for both households and companies had picked up since the start of the year and were expected to increase further.