Bank of England's Credit Conditions Report sees further cuts in lending

Banks and building societies are set to further reduce lending during the next three months, according to the Bank of England's Credit Conditions Report for the third quarter.

The report said lenders had reduced the availability of credit to households in the three months to mid-September by more than had been anticipated. This was attributed to expectations for house prices and concerns about the economic outlook.As a result, a further decline is expected for the next three months.

Kevin Davidson, analyst at Capital Economics, said: "We continue to expect the problems in the banking sector and the subsequent caution of lenders to contribute to a year of declining gross domestic product in 2009."

The study was supported by the Association of Mortgage Intermediaries (AMI), whose own research has indicated net lending in 2008 will be half that of 2009.

In its latest research - The Credit Crunch - One Year On. Adapting to a Changing Mortgage Market - the body said lending for 2008 would be roughly £55bn, and was unlikely to increase in 2009.

Chris Cummings, director general of AMI, said: "In the short term, we will see a smaller, leaner industry but the remaining firms will have the best staff and will be stronger and better diversified. Diversification will be key. Last September, 71% of larger firms had activities beyond mortgage broking alone. By March, 85% did. We want to assist firms to make the necessary changes to survive."