Credit crisis 'still poses risks'

The central bank said British sub-prime borrowers could encounter problems obtaining credit because banks faced higher borrowing costs.

The impact of the credit crunch, which was so disastrous for Northern Rock, might not be fully apparent, it said.

The report also said share prices could slide after recent sharp gains.

Sub-prime mortgages are those sold to people with poor credit histories and thus a greater chance of defaulting.

'Further shocks'

"There have been signs of recovery in recent weeks but some markets are still illiquid and the financial system remains vulnerable to further shocks," said Sir John Gieve, the Bank of England's deputy governor.

It said problems could also surface in the commercial property sector, which accounts for 9% of UK bank lending.

Lenders have been tightening the terms of loans to build office space and shops.

The Bank of England said credit could also be tighter for highly indebted companies as well as individual borrowers with poor credit histories.

The bank also warned that the dollar may be vulnerable to further falls.

Overall UK banks have had to fund an estimated £147bn of mortgage-backed securities, company buyouts and other debt vehicles that previously would have been sold to other investors, the report said.

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