The Bank of England's latest quarterly credit survey indicates a further squeeze set to be placed on borrowers.

The survey, carried out between February 18th and 25th, found many lenders expecting to make secured credit even less available in Q2 than in Q1. And unsecured lending, via credit cards and overdrafts, is also likely to be reduced 'somewhat further' over the next three months, the Bank said.

Evidence has been mounting in recent days of a growing credit squeeze on borrowers - first direct and the Co-operative making high profile announcements that they will no longer be offering mortgage facilities for new customers for the time being.

Meanwhile, the BoE report shows default rates for both households and companies creeping up since January with expectations of further increases down the line.

Figures on Wednesday showed personal borrowing in Britain climbing to a 5-yrear high in February - largely due to funds, for remortgaging purposes, getting harder to come by.

Economic consultancy, Capital Economics, says the dilemma facing the Bank of England's Monetary Policy Committee (MPC) hasn't got any easier to resolve. Inflation expectations have risen further and yet borrowers have started to suffer even more at the hands of the credit crunch.

Capital believes that the renewed problems in the money markets, together with the aggressive tightening of credit supply by mortgage lenders, will carry greater weight at this month's policy discussion. Not only do interest rates now look likely to fall in April, but it now expects them to fall to 4% by the end of 2008 and 3.5% in 2009.