Consumers and businesses across Europe have cut their borrowing in the wake rising petrol and food prices while house prices fall and banks tighten lending conditions.

The latest quarterly report from the European Central Bank (ECB) said today that lenders had continued to set tougher credit standards in the first three months of the year. While banks said their own access to wholesale funding had deteriorated over the quarter, particularly their ability to securitise debt to raise cash.

The report said: “The percentage of banking reporting that events in financial markets are having a consierable impact on the cost related to their capital position and some impact on lending has increased over the past three months.”

The ECB's data showed that 49 per cent of banks tightened standards on lending to companies in the first quarter, while 33 per cent of lenders tightened credit standards on loans for house purchases. A total 19 per cent of banks said that the credit crunch had prompted them to set tougher conditions for unsecured consumer credit.

At the same time, demand from consumers for mortgages fell. Ken Wattret, economist at BNP Paribas, said: “A deterioration has been evident for some while now but the latest survey shows a collapse, in tune with rapidly deteriorating housing market prospects in some national economies and the plunge in consumer confidence”.

The ECB said that banks would continue to tighten their lending criteria over the second quarter but not as viciously as in the first three months of the year. “Expectations point to the net tightening of credit standards ... being somewhat weaker,” the central bank said.

The report was based on information from 113 banks across the Eurozone area and covers the three months up to April 8. It is the ECB’s main source of information on how Eurozone banks are lending and whether they expect to change their practices.

The figues were at odds with information released by the ECB on money supply, which showed that corporate lending had increased in the first quarter. But Jean-Claude Trichet, the ECB president, said that the “paradox” could be due to the fact that some companies were making use of lending lines agreed with banks before the credit crunch.

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