Concern about the weakness of Britain's economic recovery grew yesterday as new figures showed that bank lending to businesses slumped at a record rate in December and that mortgage lending dropped last month.

Lending to businesses fell by £4.3 billion, pushing the annual decline to 8.1 per cent - the biggest drop since records began in 1999, figures from the Bank of England showed.

Ross Walker, UK economist at Royal Bank of Scotland, said: "Supply and demand for credit are pretty muted and likely to stay that way. You wouldn't expect much pick-up, but the fact that we're not getting it is of concern to [Governor] Mervyn King." As the news was being absorbed in the City, the Council of Mortgage Lenders (CML) reported that gross mortgage lending fell by nearly a third in January. It was the lowest monthly level of lending in nearly a decade, the CML said.

Paul Samter, economist at the CML, said that the decline was exacerbated by the end of the stamp duty "holiday" in January.

Further concerns about the recovery came as factories reported "feeble" demand this month. However, the CBI's industrial trends survey, published yesterday, had signs of hope as manufacturers' expectations for future business rose to the highest level since the recession began. About 25 per cent of factories expect output to rise in the next three months, while 18 per cent anticipate that output will fall. The resulting balance of 7 is up from 4 in January and is the highest figure since March 2008, the CBI said.

While exports have picked up, overall demand remained depressed. Ian McCafferty, chief economic adviser to the CBI, said: "Overall demand remains feeble, and given the continued weakness of total orders, growth prospects are lilely to remain subdued."

There was further evidence of the strain on credit as the closely watched M4 gauge of money supply continued to decline. The Bank's favoured measure of M4 lending, by which it judges the effect of quantitative easing, remained unchanged for the second month in January, while the annual growth rate slowed to 4.3 per cent from 4.7 per cent in December - the lowest rate of growth since October 1994.