The newest member of the Bank of England's Monetary Policy Committee has sounded a cautiously optimistic note about the prospects of a UK recovery as official figures suggest that banks are preparing to lend again.

In written testimony to the Treasury Select Committee, David Miles, a former adviser to Morgan Stanley, said the UK is going through a "very deep recession" but suggested that the worst was over.

Mr Miles highlighted the fall in the value of sterling, which could help to improve exports, and the departure of foreign banks from the UK in the wake of the banking crisis.

He also raised the prospect of an increase in interest rates "at some point", combined with a possible reversal by the Bank of its "quantitative easing" (QE) policy. The UK interest rate is currently at a historic low of 0.5 per cent.

The Bank is ploughing up to £125 billion into the economy by buying back bank and other lenders' unwanted assets in a process designed to stimulate the economy and often referred to as "printing money".

"So the prospect of a rapid return to growth doesn't seem a highly probably outcome. But there are reasons for thinking the period of the most rapid declines in output are behind us," Mr Miles wrote.

His comments came as the Bank’s latest quarterly survey of credit conditions found that lenders expect to make credit more freely available to both individuals and companies over the next three months.

The survey also showed that cheaper borrowing costs for banks had improved the availability of secured loans during the second quarter.

The Bank of England said: "This partly reflects lending commitments made by lenders to the government as a condition for participation in the Asset Protection Scheme."

But while banks they were more able to lend to borrowers, they also said that they expected demand to be limited.

The Bank said that lenders believe that demand for mortgages will hold steady, while small business customers are likely to increase their call for cash.

"Over the next three months household demand for secured credit was expected to remain broadly unchanged while demand from small businesses was expected to pick up," the Bank said.

In a speech to the London School of Economics today, Tim Besley, who is set to leave the Bank's rate-setting Monetary Policy Committee said that it was still too early to establish whether quantitative easing had worked.

"We will not know for sure whether QE has been directly effective in supporting nominal demand growth for some time and a definitive assessment right now would certainly be premature," Mr Besley said.

The Bank's report comes just days after the Organisation for Economic Co-operation and Development, a respected European think-tank, said the renewed lending by UK financial institutions was vital in order to restore economic growth.

"It is essential that the supply of new lending is not held back any longer by banks with insufficient capital to meet losses," the OECD said.

The OECD acknowledged the efforts already undertaken by the Bank but said it may need to go further to ensure that the supply of credit is boosted.

Last week, the OECD predicted the U.K. economy would contract 4.3% in 2009, with the economy stagnant in 2010.

This week, revised official figures from the Office for National Statistics showed that the economy had shrunk by 2.4 per cent in the second quarter, its fastest rate for 50 years.

Explore Economics

• Pre-Budget Report 2008

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive