BANKS and building societies plan to cut back further on lending to individuals and businesses in the face of the worsening economic outlook, a Bank of England report said today.

The decline comes despite recent measures to recapitalise the banking sector and boost the appetite of firms for lending.

Lending to households and companies has fallen steeply since the credit crunch first struck, with firms anticipating a further tightening during the first three months of 2009, according to the Bank of England's quarterly credit conditions survey.