The Bank of England has signalled that the current squeeze on lending and corporate finance looks set to continue and even get worse.

According to research carried out by the central bank as part of its Credit Conditions Survey, some 43 per cent of UK banks and building societies are now planning to tighten mortgage availability, with many even considering following the example of First Direct and stepping out of the home loans market altogether.

The Bank stated: "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."

Such a finding has prompted further speculation that the Bank's monetary policy committee will cut the base rate of interest by a quarter of a per cent when it meets next Thursday.

The survey also revealed that banks are set to reduce levels of unsecured lending even further over the next quarter of 2008 after this reached a five-year high of £2.4 billion in February.

Some financial analysts have predicted that the base rate of interest could be lowered down to 3.5 per cent by next year.