LONDON (AP) — The availability of credit in the UK increased modestly in the second quarter, although default rates and losses also rose and were expected to swell further in coming months, the Bank of England said yesterday.

In its quarterly report on credit conditions, the central bank said the supply of secured credit to households had increased but that unsecured credit — such as credit cards — was less available.

The report did little to boost hopes of a swift recovery from an economic slump which saw Britain's national output shrink by 2.4 percent in the first quarter, the sharpest decline in 51 years. However, recent reports of an increase in property prices were backed up by the Bank's survey, which found mortgages for house purchases were increasingly in demand, though the appetite for remortgaging had eased.

Demand for credit by private non-financial corporations was little changed, but the Bank's survey pointed to an increase in demand from medium-sized companies in the third quarter. The increase in credit available to the corporate sector was "less than expected", the report added.

"Improvements in the cost and availability of funds to lenders had supported easing credit conditions," the report said. "And while concerns about the economic outlook had continued to bear down on credit availability, the impact had been smaller than in previous surveys."

Vicky Redwood at Capital Economic said the report showed a slight improvement since the first quarter report, issued in February, but that it was still disappointing.

"What lenders say is not necessarily what they do," Redwood said. "While February's survey indicated that lenders would loosen credit conditions, there has been little evidence of that, with lending spreads in fact rising."

David Miles, the new member of the Bank's rate-setting Monetary Policy Committee, said yesterday that the housing market may now be set for recovery.

"My hunch — and I put it no stronger than that — is that we have seen most of the overall aggregate house price falls," he told the House of Commons Treasury committee.