April 3, 2008 / 8:36 AM / 12 years ago

Bank survey shows credit conditions set to tighten

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.

A Halifax bank card is seen in a wallet in Loughborough, central England February 27, 2008, in this posed photograph. 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. REUTERS/Darren Staples

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 February 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.”

Mortgage lenders have withdrawn many of their best offers in recent weeks and some, including First Direct and the Co-operative, have withdrawn mortgage offers for new customers altogether.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 Bank survey showed default rates for both households and companies had picked up since the start of the year and were expected to increase further.

It cited reduced risk appetite and increased concerns about

the economy and the housing market as factors curbing banks’ willingness to lend.

“In the three months to mid-March, lenders reported a reduction in the availability of credit across the full range of their lending activities to households and corporates,” it said.

“Lenders expected a further reduction in credit availability over the next three months.”

The Bank survey showed lenders were even more gloomy about the outlook for house prices than they were at the end of last year.

Approvals for new mortgages are hovering at their lowest for nearly a decade and surveys show house prices have fallen pretty consistently since the end of last year.

Data on Wednesday showed personal borrowing in Britain soared by its highest amount in more than five years in February, as consumers rushed to raise what funds they could in the wake of the credit crisis.

But the figures also showed home loan approvals languishing near decade lows as banks toughen up their lending terms despite lower official interest rates.

Editing by Mike Peacock

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