Bank of England predicts lending thaw

The Bank of England is seeing the first tentative signs that lending conditions should ease for hard-pressed businesses and homebuyers over the next few months, it said yesterday, but only at a price.

The Bank's first "Trends in Lending" review said: "Some lenders expect the overall availability of credit to the corporate sector to increase over the next three months". But the report also warns that "the major UK lenders have said that spreads over bank rate or Libor have been increased to reflect better the higher costs of longer-term funding and of capital, as well as increased credit risk".

The news that the availability of credit – if not its cost – may finally be easing will be welcomed as the Government today delivers its toughest Budget since it came to power in 1997.

In the case of the mortgage market, likely to be a focus for special attention in the Budget, the Bank also offers a mixed message, predicting that demand for mortgages will fall along with supply, "perhaps as potential buyers have anticipated further house price falls". The Bank added: "Lenders expect demand for secured credit to remain weak in coming months".

A stabilisation in the number of mortgage approvals, albeit at levels about a third below where they were before the credit crunch, would also indicate a more gentle decline, if not stabilisation, in house prices.

The Bank attributes much of the decline in mortgage availability to the exit of specialist lenders and brokers and foreign banks. It also points out that the demand for unsecured consumer credit – credit cards, car loans and so on – has fallen sharply, with a net repayment of such credits in recent months.

Although published by the Bank of England, the report is the first from the Government's Lending Panel, the body set up by the Government in last November's pre-Budget report in the wake of allegations that the banks were not doing enough to help viable firms to survive the recession. The panel comprises representatives from the authorities, major banks and consumer debt advice and trade bodies.