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Minutes from the latest Bank of England Monetary Policy Committee meeting show the very real risk of banks tightening credit further and thereby reducing the prospect of increased lending to both households and businesses.

During the discussion, according to the minutes, the view was raised that “lending to domestic households and businesses had remained subdued and there were limits to how long banks would be able to withstand elevated funding costs without materially tightening credit availability further.”

In the eurozone, the European Central Bank’s October lending survey reported its banks own tightening in credit standards for non-financial businesses in Q3 with further tightening expected in Q4.

“While the worst risks had not so far crystallised, the threat of their doing so had increased, exacerbating the already severe strains in bank funding markets and financial markets more generally.”

With tightening credit at home and abroad there is a greater need for a “credible and effective policy response” to reduce uncertainty and lessen the drag on global and UK spending.

The minutes warned: “But failure to respond successfully to those challenges would have significant adverse consequences for the world and UK economies.”

The conclusion is that the risks for the UK economy are “skewed to the downside in the near term...but broadly balanced ahead.”

The meeting, held on 9 and 10 November, concluded that interest rates would remain at 0.5% and that its asset purchase programme is to stay at £275bn.