Lenders expect to extend more credit

"The prospect of a rapid return to growth doesn't seem a highly probable outcome. But there are reasons for thinking the period of rapid declines in output are behind us," Miles told a Treasury committee.

The BoE survey noted that concerns about the economic outlook had continued to bear down on credit availability in the second quarter, but the impact had been less than in previous quarters and lenders had expected to increase credit further in the coming quarter.

However, while lenders expected demand for loans from small businesses to pick up, they did not expect any increase in demand for mortgages.

There was also an expectation that default rates would continue to rise and little appetite to cut spreads -- the margin over the Bank rate that lenders charge for credit.

"The survey was not overly encouraging about the outlook for bank lending and therefore the prospects for overall economic growth," said Vicky Redwood at Capital Economics.

"The improvement in the balances may just have reflected the lending commitments made by lenders participating in the Asset Protection Scheme, rather than a fundamental shift in lenders' risk appetite."

(Additional reporting by David Milliken and Fiona Shaikh; editing by Chris Pizzey)