The credit squeeze for households and businesses looks set to intensify over the coming months as lenders grow increasingly nervous over the economic outlook, a survey by the Bank of England showed on Thursday.
The findings follow a raft of dismal news from the lending industry and may boost speculation Britain's central bank will cut interest rates next week.
The Bank's quarterly credit survey, conducted Feb 25 to March 19, showed lenders expected to reduce the availability of secured credit to households even more sharply in the second quarter of the year than in the first.
Unsecured credit availability was also expected to be reduced "somewhat further" over the coming three months.
The survey showed default rates for both households and companies had picked up since the start of the year and were expected to increase further.
It cited reduced risk appetite and increased concerns about the economy and the housing market as factors curbing banks' willingness to lend.
"In the three months to mid-March, lenders reported a reduction in the availability of credit across the full range of their lending activities to households and corporates," the survey noted. "Lenders expected a further reduction in credit availability over the next three months."