http://www.telegraph.co.uk/finance/e...and-warns.html
Britain's major lenders have tightened credit availability significantly in the past three months, and intend to make borrowed cash even harder to get hold of in the coming quarter, according to a survey from the Bank of England. The development comes in spite of the Government's insistence when it bailed out three of the UK's biggest lenders in October that they would raise mortgage availability back to 2007 levels.
Economists have said the UK is trapped in a so-called negative feedback loop, with the economy slumping further as banks restrict mortgage and other loan availability in an effort to repair their balance sheets. This in turn causes further defaults, which causes more damage to their accounts, and worsening the vicious cycle.
The Bank's Credit Conditions Survey shows that lenders reduced the availability of secured credit such as mortgages to households in the three months to mid-December 2008, adding: "A further decline was expected over the next three months."
The survey also revealed that banks are the demand for credit from both households and companies fell in the fourth quarter, while defaults and losses increased.
Lenders are already withholding the full extent of the Bank of England's recent interest rate cuts - to the irritation of both customers and the Government - and the survey indicates that they are likely to continue doing so in the coming months.
Nationwide announced that it will not pass on further rate cuts to customers with its tracker mortgages.
In November the average cost of a two-year fixed-rate mortgage fell by less than half the 1.5pc interest-rate cut that month.
Although the survey is likely to increase pressure on the Bank to cut rates further, it also reignites suspicion that the Government will have to intervene to resolve the mortgage market's current malaise.
Howard Archer, UK economists at IHS Global Insight said: "The credit conditions survey intensifies pressure on the Bank of England to slash interest rates further.
"We expect the Bank's Monetary Policy Committee to reduce interest rates by at least a further 75 basis points from 2pc to 1.25pc next Thursday.
"While an even bigger cut could well occur, we suspect that the MPC may well decide to moderate the pace at which it is cutting interest rates as they near zero and to allow the previous large cuts more time to feed through and have a significant effect .
"Further out, we expect interest rates to fall to a low of 0.5pc in the second quarter of 2009 and then stay there for the rest of the year. However, it is far from inconceivable that interest rates could come all the way down to zero."
Britain's major lenders have tightened credit availability significantly in the past three months, and intend to make borrowed cash even harder to get hold of in the coming quarter, according to a survey from the Bank of England. The development comes in spite of the Government's insistence when it bailed out three of the UK's biggest lenders in October that they would raise mortgage availability back to 2007 levels.
Economists have said the UK is trapped in a so-called negative feedback loop, with the economy slumping further as banks restrict mortgage and other loan availability in an effort to repair their balance sheets. This in turn causes further defaults, which causes more damage to their accounts, and worsening the vicious cycle.
The Bank's Credit Conditions Survey shows that lenders reduced the availability of secured credit such as mortgages to households in the three months to mid-December 2008, adding: "A further decline was expected over the next three months."
The survey also revealed that banks are the demand for credit from both households and companies fell in the fourth quarter, while defaults and losses increased.
Lenders are already withholding the full extent of the Bank of England's recent interest rate cuts - to the irritation of both customers and the Government - and the survey indicates that they are likely to continue doing so in the coming months.
Nationwide announced that it will not pass on further rate cuts to customers with its tracker mortgages.
In November the average cost of a two-year fixed-rate mortgage fell by less than half the 1.5pc interest-rate cut that month.
Although the survey is likely to increase pressure on the Bank to cut rates further, it also reignites suspicion that the Government will have to intervene to resolve the mortgage market's current malaise.
Howard Archer, UK economists at IHS Global Insight said: "The credit conditions survey intensifies pressure on the Bank of England to slash interest rates further.
"We expect the Bank's Monetary Policy Committee to reduce interest rates by at least a further 75 basis points from 2pc to 1.25pc next Thursday.
"While an even bigger cut could well occur, we suspect that the MPC may well decide to moderate the pace at which it is cutting interest rates as they near zero and to allow the previous large cuts more time to feed through and have a significant effect .
"Further out, we expect interest rates to fall to a low of 0.5pc in the second quarter of 2009 and then stay there for the rest of the year. However, it is far from inconceivable that interest rates could come all the way down to zero."
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