Lenders expect to extend more credit

The quarterly credit conditions survey showed government initiatives to boost lending had enjoyed some success -- secured credit to households increased in the second quarter for the first time since the third quarter of 2007.

But lenders expected spreads on new mortgage lending to remain wide, meaning borrowers would not see the full benefit of record low interest rates. And spreads on corporate lending were expected to widen further.

"While there are some encouraging signs in the credit conditions survey, the UK is certainly not out of the woods yet," said Colin Ellis, an economist at Daiwa.

"As long as credit scores continue to tighten, that will make it harder for households to get funding, which is likely to restrict activity, particularly in the housing market, for some time."

Britain's central bank slashed interest rates to a record low 0.5 percent in March and has been pumping cash into the economy by buying assets, mainly government bonds, with newly created money.

So far, the BoE has bought just over 100 billion pounds of assets under its quantitative easing programme, putting it on track to complete its 125 billion pound target by the end of the month.

QE QUESTIONS

Economists are split on whether the central bank will extend its QE programme but all agree that credit conditions will be key to that decision.

Although mortgage approvals have picked up from record lows hit last year, hard indicators of lending remain weak. David Miles, a new recruit to the central bank's monetary policy committee, noted that bank lending remained low and a sustained pick-up was not guaranteed.