Banks have reduced lending to UK households in the last three months, according to a Bank of England survey.

Its quarterly Credit Conditions Survey found that lenders were less keen to offer loans because of the worsening credit crunch, sparking hopes of a further cut in interest rates.

“Lenders reported a slightly larger reduction in the amount of unsecured credit available to households and small businesses than they had expected three month ago,” said the report.

“This had been associated with concerns about the economic outlook, and a reduced appetite for risk.”

The central bank said that secured lending had also fallen, and forecast that credit availability credit would continue to diminish over the next three months.

“This partly reflected further reductions in risk appetite and market share objectives, though lenders’ concerns about the macroeconomic outlook, including the housing market, were also important considerations,” the report added.

The most recent fall in interest rates came in December when the Bank of England cut them from 5.75 per cent to 5.5 per cent.