A new Bank of England survey today shows that lenders are predicting credit conditions will get even tighter for corporate borrowers in the run-up to Christmas and more medium-sized companies are expected to default on loans.

The terms on corporate loans were also tipped to worsen, according to the Bank's Credit Conditions Survey published today. Lenders said that they would have to raise spreads and fees, impose stricter covenants and raise their collateral requirements.

Lenders have cut the availability of corporate credit in the third quarter, and the Bank said they expect to have to reduce credit "significantly" over the next three months.

The banks also forecast that the number of medium-sized companies defaulting on their loans was likely to rise, and said that defaults by mortgage holders would also increase modestly.

Vicky Redwood, of Capital Economics, said: "This survey increases the chances that investment, rather than the housing market and consumer spending, will be the main casualty of the credit crunch."

But in an encouraging sign for consumers, the banks, building societies and other lenders surveyed said that the availability of home loans for consumers was unchanged over the past quarter and was likely to remain so.

Michael Coogan, director general of the Council of Mortgage Lenders, said: "Although this survey was undertaken before the Northern Rock situation emerged, the funding constraints arising from the slowdown in the interbank lending market were already apparent.

"Against this backdrop, it is encouraging to see that the lenders contributing to the Bank survey largely expect the supply of mortgage lending to hold up."

The survey came as new figures showed the UK economy in robust condition. The Office for National Statistics reported that GDP grew by 3.1 per cent in the year to the second quarter, upwardly revised from an earlier estimate of 3 per cent.

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