Banks expect credit squeeze to continue

Banking groups across the UK expect to see the credit squeeze continue for the next three months at least, according to a recent survey.

A poll of money lenders by the Bank of England has established that financial service firms are reluctant to offer borrowing deals to consumers and each other in the current economic climate.

Millions of people are struggling to become debt free but the bank’s survey suggests that lenders are looking to increase their interest rates and offer fewer deals.

In addition, the recent research found that more and more homeowners are defaulting on their mortgage repayment demands.

“Along with news that service sector activity contracted in June, tighter credit conditions heap pressure on the Bank of England to hold off from raising interest rates despite current elevated inflation levels and risks,” said Howard Archer from the analyst firm Global Insight.

The Bank of England opted to reduce the base rate of interest on two occasions earlier this year, which came as welcome news for borrowers with debt management problems.

By Giles Stevenson