The borrowing drought crippling UK households and businesses looks set to continue despite Government attempts to get banks lending again.
In a further blow to the economic outlook for 2009, the Bank of England said banks and building societies anticipated a further tightening in the availability of credit to individuals and firms in the first three months of the year.
The Bank's quarterly credit conditions survey showed lenders remained fearful of the depressed economic outlook and its potential impact on defaults.
The update will offer a major blow to policymakers after Bank of England Governor Mervyn King identified the current freeze in credit markets as one of the biggest threats to the under-pressure UK economy in 2009.
With little evidence of a thaw on the way, Mr King and his colleagues on the Bank's Monetary Policy Committee (MPC) will be under more pressure to sanction another hefty cut in interest rates next Thursday.
The Government has already offered £37 billion to bail out banks, and it has urged lenders to commit to offering competitively-priced loans to homeowners and to small businesses.
There were other signs today of a bleak 2009 in prospect for homeowners, with the Halifax reporting a record 16.2% fall in prices during 2008 and forecasting further downward pressure on prices in the coming months.
And the Nationwide announced that it would not be passing on future interest rate cuts to around 250,000 of its tracker mortgage customers.
Mortgage lending has fallen steeply since the credit crunch first hit, with new figures released by the Bank of England showing that the number of mortgages approved for house purchase hit a new record low of 27,000 during November - only a third of the level recorded in November 2007.
The fall dashed hopes that declines in mortgage approvals had bottomed out, following four months during which the figure had been around 32,000.
It also suggested that November's surprise 1.5% interest rate cut had failed to have an immediate impact on housing market activity.
Net lending, which strips out redemptions and repayments, recovered slightly to £740 million, compared with just £477 million in October, but the figure was still less than half of the recent six-month average of £1.9 billion.
House prices are continuing to be hit by the mortgage drought, with the tighter lending criteria being employed by banks making it increasingly difficult for people to buy their first home or trade up the property ladder.
The Bank of England's credit conditions survey said the failure of Lehman Brothers and the resulting financial crisis had led to a steeper reduction in secured credit to households and firms during the final three months of 2008 than had been previously forecast.
The survey also showed that the number of people defaulting on their mortgage had risen during the period.
Halifax warned that the property market would come under further pressure in 2009 as the financial crisis continued to restrict lending in the UK.
It said prices had fallen by 2.2% in December pushing the average cost of a home down to £159,896, a level last seen in August 2004.
The 16.2% annual house price drop measures prices in the previous three months compared with the same period a year ago, but if house prices in December are compared with prices in December 2007, the fall is even more dramatic at 18.9%.
Howard Archer, chief UK and European economist at IHS Global Insight, said despite interest rate falls and property price reduction, the outlook for the housing market remained "bleak".
Hetal Mehta, senior economic advisor to the Ernst & Young ITEM Club, said: "With mortgage approvals recording a fresh low and mortgage lending barely increasing, there is still much trouble ahead for the housing market.
"The expected tightening in the supply of credit will only serve to make the situation worse."
Economists said today's findings increased pressure on the MPC to slash interest rates further next week, possibly by as much as 0.75% to 1.25%.
But the majority of tracker customers at Nationwide will fail to benefit from any cut after the lender said it would invoke a clause in the deals enabling it to stop reducing rates on the loans when the base rate fell below 2%.
The mortgages have a so-called collar, which was supposed to kick in when the base rate fell below 2.75%, but the group decided to waive the clause last month, passing on December's 1% reduction in full.
It defended today's announcement, saying the move would protect its savers from further aggressive rate cuts. But there are fears that other lenders may follow suit and stop passing on future rate reductions to tracker customers.
Meanwhile, the British Bankers' Association defended the banks' current stance on lending. A BBA spokeswoman said: "There has been a downturn across the whole UK economy and bank lending reflects this."