Consumers and businesses across Europe have cut their borrowing in the wake rising petrol and food prices, falling house prices and tighter lending conditions.

The lastest quarterly report from the European Central Bank (ECB) said yesterday that banks had continued to set tougher credit standards in the first three months of the year. The banks said that their own access to wholesale funding had deteriorated over the quarter, particularly their ability to securitise debt to raise cash.

“The percentage of banks reporting that events in financial markets are having a considerable impact on the cost related to their capital position and some impact on lending has increased over the past three months,” the ECB report said.

The survey showed that a net 49 per cent of banks had tightened standards on lending to companies in the first quarter, while a net 33 per cent of banks tightened credit standards on loans for house purchases and 19 per cent said that the credit crunch had prompted them to set tougher conditions for unsecured consumer credit.

Oil is the key to world recovery

The shock of $140 oil has created inflationary and deflationary pressures that threaten world economy and policy tools

• Former President Bush energy adviser says oil is running out

Background

• Oil is the key to world recovery

• Banks may need to pump billions into scheme

• UK economic growth weakest for three years

Related Internet Links

• Full credit crunch coverage

Background

• Happy days are over for UK households

• Banks restrict mortgages by brokers

• Credit crunch halves lending at Nationwide

• JPMorgan to cut Bear Stearns jobs

• George Soros: Crunch will bite deeper in UK

Related Links

• Fed and ECB pump $82bn into banking system

• Central banks offer fresh £35bn emergency credit

At the same time, demand from consumers for mortgages fell. Ken Wattret, economist at BNP Paribas, said: “A deterioration has been evident for some while, but the latest survey shows a collapse, in tune with rapidly deteriorating housing market prospects in some national economies and the plunge in consumer confidence.”

The ECB said that banks would continue to tighten their lending criteria over the second quarter, but not as viciously as in the first three months of the year. “Expectations point to the net tightening of credit standards . . . being somewhat weaker,” the central bank said.

The report was based on information from 113 banks across the eurozone area and covers the three months to April 8. It is the ECB's main source of information on how Eurozone banks are lending and whether they expect to change their practices.

Yesterday's figues were at odds with information released yesterday by the ECB on money supply, which showed that corporate lending had increased in the first quarter. Jean-Claude Trichet, the ECB president, said that the “paradox” could be because some companies had agreed lending lines with banks before the credit crunch.

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• US stocks fall below 9,000 mark
• House price fall smallest in seven months
• Wary investors opt to keep cash in safes