Businesses are facing a further tightening of credit conditions in the months ahead as the economy’s good times fade abruptly, a gloomy survey from the Bank of England showed yesterday.

The report into expectations of banks and other lenders pointed to a “significant” retrenchment of credit in the final quarter of the year for business borrowers. It was published as official data revealed that, before the worldwide credit squeeze hit last month, the economy was growing even better than originally thought, thanks to the strongest growth in corporate profits for 12½ years.

Lenders responding to the Bank’s first quarterly Credit Conditions Survey forecast that the terms on corporate loans would worsen. They 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 that it expected to have to reduce credit “significantly” over the next three months.

The banks and building societies 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.” Tougher tests for lenders and dearer money would compound the effect of the Bank’s five increases in base interest rates since August 2006 and slow growth to only 2 per cent next year, she forecast.

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, the 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 figures showed that the UK economy was in robust condition in the second quarter of the year, expanding by 0.8 per cent. The Office for National Statistics (ONS) reported that GDP grew by 3.1 per cent in the year to the second quarter, revised from an earlier estimate of 3 per cent.

The ONS said that after revised calculations of the effect of missing-trader fraud, net trade appeared to have made a positive contribution to growth. Data on the balance of payments showed that the UK’s current account deficit narrowed to £9.1 billion from £10.6 billion in the first quarter.

The detailed figures indicated that companies’ operating surpluses rose in nominal terms by 14.8 per cent over the year to June, the strongest such figure since the fourth quarter of 1994. Consumers enjoyed a rebound in their real disposable income that reversed the 1.1 per cent drop in incomes in the first quarter. That came despite a sluggish 0.3 per cent rise in pay.

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