The Bank’s latest credit conditions survey for the final quarter of 2012 credited the impact of the Funding for Lending scheme introduced in August with the rise in loan availability, which is also driving down the cost of loans for homeowners and larger businesses. But smaller firms are still reluctant to approach the banks for loans and have yet to see cheaper lending rates, it added.

The Funding for Lending scheme was launched last August and rewards banks and building societies with cheap funding lines in return for growing their lending.

The survey showed the initiative having its biggest impact in the mortgage market, where a net balance of 26 per cent of lenders reported rising loan availability, the highest since the Bank began the survey in 2007.

Despite recent figures showing lenders slow to draw down FLS funds before Christmas, banks and building societies also expect a “further significant increase” in credit availability ahead with would-be homeowners and buy-to-let investors keen to snap up loans. Barclays Capital chief UK economist Simon Hayes said a recovering housing market inspired by the FLS scheme could help growth by boosting consumer confidence.

But he added: “After all the talk of rebalancing it is a sign of how desperate the economic situation has become that a resurgence of the housing market might provide the best prospect for recovery. Even so, unbalanced growth is probably better than no growth, and the success or otherwise of the FLS could be a key determinant of the UK’s economic performance in 2013.”

The survey also bolsters hopes that a revival in credit conditions for business could help the struggling economy avoid a return to slump, but smaller firms saw little of the glut in credit availability. Their cost of borrowing was “broadly unchanged” in contrast with the cheaper rates on offer to larger businesses. A 19 per cent balance of lenders reported smaller firms worried about punitive terms were applying in fewer numbers.

Stewart Baird, of venture funding company Stone Ventures, said: “There is nothing to suggest small businesses will enjoy better credit conditions in the short term. The fact that demand for credit from small businesses weakened during the fourth quarter is a result of two factors: firstly, SMEs have given up on even approaching their bank and secondly, they are looking to alternative finance channels. Increasingly, the banks are being written out of SMEs’ plans.”

Bearish Capital Economics cut its growth forecast to just 0.2 per cent this year despite signs of a credit thaw. Chief UK economist Vicky Redwood said: “Whether banks actually follow through on these intentions to boost the supply of credit remains to be seen. What’s more, even if banks make more credit available, firms and households may not want to borrow more.”