Fears over the toll on the economy from the credit squeeze have mounted after the Bank of England said that loans became tougher to get for both households and companies in the past quarter, and that banks now expect to curb access to credit still further.

The bleak findings fuelled anxieties that banks’ moves to impose higher interest rates and more stringent conditions when lending, while turning down more would-be borrowers, will slam the brakes on the economy.

In its quarterly survey of credit conditions, the Bank found that the availability of mortgages to homebuyers during the three months to mid-December had already “reduced materially”, and that new home loans were expected to become still scarcer and more expensive in the present quarter. Lenders were also tightening the screws on borrowing through credit cards and personal loans, with previously easy access to these set to become harder. Businesses, too, are finding it increasingly difficult to raise needed loan finance.

The Bank’s survey results showed that 31.2 per cent more lenders said that the availability of mortgages had grown worse in the past quarter than said it had stayed the same or improved. That compared with a net 0.1 per cent in the third quarter survey reporting that mortgages were easier to obtain, marking a sharp tightening of conditions for secured borrowing.

Previously, it was hoped that the credit squeeze would have only limited direct effect on household borrowing, with lenders having predicted that mortgage availability would improve in the final quarter of last year.

With less readily available mortgages already seen as a significant factor behind the housing market’s slow-down, and lenders’ fears of a weaker market, falling house prices, and rising mortgage defaults leading them to further restrict access to home loans, the Bank’s findings raised the threat of a vicious circle of negative trends. A net 25 per cent of lenders expect conditions in the mortgage market to deteriorate further, the survey showed.

As well as heightened worries over the housing market, lenders’ increased unwillingness to take on risk was blamed on wider economic fears and greater difficulties for institutions in raising funds and securitising loans.

Some economists cautioned that the survey’s findings may give too gloomy a view given that money market conditions have thawed significantly since it was completed. But the results fuelled speculation that the Bank could cut interest rates again next week. The pound fell sharply, hitting a record low against the euro, which climbed to 74.68p by the close of London trading, having earlier hit 74.81p, the highest in its nine-year history. On its trade-weighted index, sterling hit a four year low of 96.4.

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