Banks have warned that higher funding costs due to the euro zone debt crisis may hit lending in the first three months of 2012, a Bank of England survey showed on Thursday.
The central bank's quarterly Credit Conditions Survey also showed that small businesses' demand for credit had plummeted in the fourth quarter, and that banks expected credit demand to fall across the board.
While lenders expect credit availability to increase a little to the household and corporate sectors ... factors such as the economic outlook and tighter wholesale funding conditions were expected to have a negative impact, the Bank said.
The central bank noted that the survey already pointed to tighter credit supply conditions going forward as banks expected to apply stricter criteria.
In particular small companies have been complaining about the lack of credit, though banks have put lacklustre lending down to a lack of demand.
Chancellor George Osborne announced a scheme of credit easing on November 29, aimed at boosting lending to small an d medium-sized firms.
Bank survey showed that default rates among large and medium-sized companies had picked up for the first time in two years at the end of 2011 and banks expected a further increase.
Banks said the demand for mortgage lending as well as unsecured lending had fallen in the fourth quarter and was set
to fall further.
The survey also showed that banks approved a smaller proportion of mortgage applications.
The survey was conducted between November 22 and December 13.
(Reporting by UK Economics Desk in London)